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Hu An Cable Holdings Ltd issued a profit warning on Thursday night, saying that it expects to report a loss for the six months ended June 30.
Besides facing a slump in sales and gross margins due to shrinking market demand and heightened market competition, the loss was mainly attributable to impairment losses on doubtful prepayments to suppliers and on doubtful trade receivables due to slow debt collection.
The group had collectively placed 310 million yuan (S$67.7 million) as prepayments to one of its major suppliers to purchase raw materials. But this supplier had declared bankruptcy and was under liquidation stage in June, according to Hu An Cable.
Given the liquidation status of this supplier and that no collateral was collected, the group had made provision for full amount of prepayments.
"China's economic reforms have posed an unprecedented challenge to our business environment," it said.
"Following the shift from an investment-driven growth model to a consumption-based growth model, the Chinese banks have tightened financing facilities for capital-intensive sectors, including the cable and wire industry and its upstream and downstream industries."
Further details of the group's performance will be released when the company announces its unaudited financial results for the first half ended June 30 on or before Sept 14.