You've heard the one about China, right? How it's a no-brainer for investing? I mean, think of all those Chinese people. There's, like, a gazillion of them. They're going to want one of everything soon, right? They'll be spending loads on Internet access and games from SinaCorporation (NASDAQ:SINA) and Netease.com (NASDAQ:NTES). They'll be writing huge checks for energy from the likes of PetroChina (NYSE:PTR) and SinopecShanghai (NYSE:SHI), and they'll be running up major bills for phone service on China Telecom (NYSE:CHA). You name it, they'll buy it. And that should make investors rich, rich, rich!
Not so fast. Apparently, one of the things they can use less of in China are the cars and minvans produced by Brilliance China (NYSE:CBA).
The full-year numbers released by the company prove that what goes up can come down just as quickly. And I'm not just talking about the stock price, which has given up almost 75% since breaching $60 a stub in early 2004. I'm talking about profits, which gave up almost 100% of the 2003 results.
Sales dropped 35% to $790 million, and profits zipped down from $2.57 per ADS last year to $0.0036 per ADS this year. Cheer up -- that's only a 99.9% decrease.
Brilliance is far from a one-trick pony. It not only produces minibuses, but also sedans, BMW sedans, and parts for other automotive manufacturers, including engines for Mitsubishi. It conducts all this business through a dizzying array of two-dozen subsidiaries, joint ventures, and partnerships. Sure, it's noChina Yuchai (NYSE:CYD), but it's enough to send investors grabbing for the reading glasses along with the antacid.
Unfortunately, our little pony's stumbling on most of its tricks. Leading the problems is a 57% decline in sales of the Zhonghua sedan. Kind of makes the 17% drop in minibus sales look good. Anyone who's watched steel prices will not be surprised to learn that cost of sales increased dramatically, from 76.4% of revenue to 83.9%.
Suffice it to say, there's precious little to be thankful for if you've held these shares for the past year. Of course, none of this is exactly news, given that management delivered two warnings in one last month -- one for earnings, the other for the stock. Until investors get a clearer picture of what the future holds for this newly crashed Chinese superstar, they ought to keep that warning in the front of their minds: "Shareholders of the Company and investors should exercise caution when dealing in the shares of the Company."
For related Foolishness:
- Brilliance lost some luster last month.
- Watch out for the Chinese diesel torture.
- The real way to make money in China isn't available to most of us.
- Want another China play? There are a couple of ways to invest in the Chinese food biz.
- Check out some of the ways China investing can have you seeing red.
Seth Jayson is glad he stayed out of those sure-fire Chinese investments. At the time of publication, he had positions in no company mentioned. Netease.com is a Rule Breakers pick. View his stock holdings and Fool profile here. Fool rules are here.
