Mr Raymond Cheng Chor-kit, Chairman of Kin Yat Holdings, noted: "Although there are signs of a pick-up in consumption interest, the positive impact is yet to be felt at the supplier's level. Our priority is to sustain and enhance competitive strengths in this challenging environment by improving its fundamentals in production efficiency, pricing strategy and the development of niche products for the world's core toy markets."

In the first half, the toys and motors divisions contributed 62.7% and 29.3% respectively in revenues to the Group. Kin Yat's management will continue its business diversification initiative that was started in 2000 with the aim of strengthening the Group's revenue generating power.

The toys division was able to maintain its gross margin even though there was a 19.3% drop in turnover to HK$247,985,000 during the six-month period. This achievement was largely attributable to the Group's ongoing efforts to differentiate itself from its competitors with the introduction of innovative and value-added products of specialized technologies. The management's dedicated efforts to sustain capital expenditure, reduce costs and optimize deployment of resources at such difficult times also contributed to maintaining a positive profit margin.

Market activities in the toys sector were subdued and quiet during the six-month period. The very strained situation in Iraq towards the end of last year and early this year - usually the critical order placement time - had pulled buyers back from committing to any new projects, and the consequences of which were reflected in the very sluggish manufacturing activities in the second and third quarters of 2003. Business activities were further slowed down due to the outbreak of SARS from March to June this year.

Toy customers chose to minimize their risk exposure through active product diversification to appeal to a broader spectrum of consumers. Such strategy - more variety, lower volume for each model - diminished economy of scale and put a tight squeeze on Kin Yat's profit margin. In response to growing price-consciousness among consumers, retailers continued to target their merchandising effort on mid-to-low end items and transfer significant pressure on the manufacturers.

The Group's motors division continued to derive the majority of its business from the toys sector. Despite the overall weakness of the toys sector, Kin Yat's motors division was able to sustain its turnover to approximately the same level of HK$124,180,000 compared with the corresponding period of the previous year.

The motors division was able to achieve a higher margin from a change of product mix to more high value-adding items during the six-month period. Though a large part of this increase was offset by rising steel prices, this division recorded a 1.4% growth in segment result year on year.

The Group continued its attempts to expand motor-powered applications to product categories other than toys, including personal care devices. Although these strategic initiatives to enhance product mix might have dampened the division's profit margin in the short term, the Group believes the move is instrumental to sustaining long-term growth.

The Group's 50%-owned CDR manufacturing arm, performed satisfactorily and recorded its maiden profit. Its six production lines had been in commercial operation during the entire six-month period. The relocation to China last year was proven to be a strategic move of substantial benefits to lower manufacturing and overhead costs, and to strengthen the division's competitiveness in business and customer acquisition.

"Global consumption for toy products and other motor-powered devices lacks growth momentum. In addition, the continued instability in the Gulf area is always a concern, as any oil price hike would increase the cost of plastic, one of our major raw materials, and impede our profitability. The overall outlook is further clouded by the sharp increases in metal prices, a trend which is likely to prevail for some time until the overheated demands begin to level out. Nevertheless, we continue to harbour cautious optimism as to the prospect of our future growth potential and are actively preparing ourselves to capitalise on emerging opportunities of synergistic value," said Mr Cheng.

The Group continued to command a strong financial position, with cash in hand of HK$74 million and a healthy gearing ratio of HK$1.5% as at September 30, 2003. About Kin Yat Holdings
Kin Yat Holdings Limited (SEHK: 638) is an industrial group with a niche in electronic and mechanical productions. It has a stretch of toy, micro motor and CDR manufacturing businesses, all based on its strong cost-effective engineering and production platform in China. Headquartered in Hong Kong, Kin Yat operates two production centers in Shenzhen and Shaoguan, China.

Six months ended September 30,
	2003	2002
	HK$ '000	HK$ '000
Turnover	395,468	444,916
Toys and related products	247,985	307,124
Motors (including sales to Kin Yat Group)	124,180	125,612
Motors (sales to Kin Yat Group)	(8,529)	(9,801)
Electrical household appliances	31,832	21,981
Net Profit Attributable to Shareholders	42,405	44,539
Segment Results from operating activities
Toys and related products	16,734	25,148
Motors (including sales to Kin Yat Group)	31,138	30,715
Electrical household appliances	662	472
Interim dividend per share	HK2.0 cents	HK2.5 cents
Earnings per Share
- Basic	HK10.48 cents	HK11.34 cents
- Diluted	HK10.44 cents	HK11.30 cents

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Kin Yat Holdings Limited

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