Kin Yat participates in three business lines: toys, micro motors and optical disks. Faced with challenges arising from fierce price competition, price increases in raw materials and shortages of labour and electricity, the Group's overall gross profit margin dropped by 6% points to 15%.

Mr Raymond Cheng Chor-kit, Chairman of Kin Yat Holdings, remarked: "The 2004-05 financial year is going to be very challenging for all manufacturers - certain adverse environmental factors, including labour and electricity shortages and rising material costs and overheads, are likely to persist for some time. However, we will continue to ride on our manufacturing and technological strengths, and spruce up operating infrastructure with a more refined strategic direction, to build market share and improve profit-making capabilities. Our Group will maintain its long-term resilience through increased marketing efforts, and renewed management commitment to advance cost structure and operating efficiency."

The toys division reported a segment loss of HK$12,729,000 on a 32% decrease in turnover to HK$388,600,000 on the back of very conservative order placements from buyers and retailers. The Iraqi war fell into the peak order placement period to further suppress the already subdued market sentiment. The SARS outbreak also deterred many procurement trips of buyers. Meanwhile, customers continued to minimize their risk exposure through active product diversification - more model variety and lower volume for each model - and this further diminished the Group's economy of scale. Additionally, retailers continued to target merchandising effort on low to mid-priced items and transfer part of margin squeeze on the manufacturers. There was also cut throat price competition from Mainland Chinese manufacturers.

Another adverse factor came from the soaring oil prices resulting in significant surges in costs of plastics and other petrochemicals, all key materials for toys making. Faced with intensifying competition, the Group had to absorb price hikes in materials, especially in the second half. Overheads also mounted in pace with tightened labour laws in China and customer demands in code of conduct.

Given the poor and unanticipated market conditions, some clients decided to strategically drop or defer projects under development in the second half of the financial year, causing some sales loss for the Group.

"Looking ahead, despite the very difficult market environment, we firmly believe in and pledge to continue advancing our unique competitive strength in adding values to products with innovative and specialized technologies. One such initiative was the development of materials to extend the Group's vertical integration competence and add value to its products," added Mr Cheng.

The Group's motors division continued to focus its business activities in the toys sector as efforts to expand into other sectors were stalled by the SARS outbreak. Given the poor market conditions in the toys sector, the motors division managed to achieve a slight increase in turnover to HK$179,446,000 and a segment profit of HK$43,946,000. Profit margin was maintained stable as a result of constant enhancement of the product mix to offset unfavourable industry factors.

The availability of stock raw materials had buffered the motors division's profit margin from substantial price increases in copper and steel. Nevertheless, the impact of higher material costs will be reflected in the performance of the first quarter of 2004-05 financial year as fierce market competition does not allow the transfer of price increases to customers.

The performance of the Group's 50%-owned CDR manufacturing arm was within target as six production lines were in full operation during the entire year but unstable supply of electricity had impaired its performance somewhat. Competition has begun to mount in China and this led to the emergence of a price war in the second quarter. In June 2004, six additional production lines were installed, increasing the production capacity to approximately 11 million pieces per month. The enhanced economy of scale has further reduced the division's production cost.

Kin Yat Holdings continued to enjoy a healthy financial position, with net cash in hand of HK$31 million and net asset value of HK$498 million as at end of March, 2004. Current ratio (current asset divided by current liabilities) was maintained at a healthy level of 2.3 times.

Year ended March 31,
	2004	2003
	HK$ '000	HK$ '000
Turnover	624,665	794,209
Toys and other products	388,600	569,408
Motors (sales to external customers only)	179,446	169,016
Electrical household appliances	56,619	55,785
Net Profit Attributable to Shareholders	24,832	71,443
Segment Results from operating activities
Toys and related products	(12,729)	46,307
Motors	43,946	43,116
Electrical household appliances	255	1,262
Final dividend per share	HK1 cents	HK5 cents
Earnings per Share
- Basic	HK6.13 cents	HK17.92 cents
- Diluted	HK6.11 cents	HK17.66 cents

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 optical disk manufacturing businesses, all based on its strong cost-effective engineering and production platform in Shenzhen and Shaoguan, China.

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Kin Yat Holdings Limited

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