Haier Electronics Group Co Ltd, the Hong Kong-listed arm of China's leading home appliance maker Haier Group, is to sell its unprofitable mobile phone business to its parent firm for about HK$420 million (US$54.2 million).

The sale and purchase deal was signed on Thursday, the company said in a statement yesterday to Hong Kong Exchanges and Clearing Ltd.

The sale is part of the plan to transform Haier Electronics into "the listed flagship of Haier's white goods business," the company said.

Haier intends to be one of the top three global white goods manufacturers in the world.

"The mobile handset businesses ... fall outside the scope of white goods," the company said.

Haier Electronics saw a HK$433 million (US$55.8 million) net loss last year, compared with a net profit of HK$119 million (US$15 million) in 2004.

The loss was blamed on the bad performance of the mobile phone business amid tough competition.

China's mobile phone market has seen intensifying competition since early 2005, mainly due to industry overcapacity, the growth of illegal mobile handsets and price cutting strategies triggered by both foreign and domestic producers.

The business "will continue to come under pressure," the company said.

It is expected to record a profit of HK$90 million (US$11.6 million) from the sale of the two mobile handset operations Pegasus Qingdao and Pegasus Electronic.

Haier Electronics is in negotiations to acquire other business operations including front-loading washing machines and water heater manufacturers from its parent Haier Group.

Currently, the only household appliances it sells are Haier's top-loading washing machines.

The company is also considering acquiring Haier Group's interest in the A-share company Qingdao Haier Co.

Qingdao Haier, listed on the Shanghai Stock Exchange, is undergoing a restructuring that includes share reform and a possible injection of certain business from Haier Group.

After the share reform, approved by independent shareholders earlier this month, Haier Group's stake in Qingdao Haier will be reduced from 41.95 per cent to about 36.84 per cent.

Haier Electronics' share price has more than doubled since November on speculation its parent company will transfer the profitable household appliance assets to its own unit.

The share price closed at HK$0.295 (4 US cents) yesterday, down by 7.81 per cent.

Source: China Daily