Top lines:
Sino Hua-An's 3Q10 revenue registered a drop of 5.0% to RM 325.1 million q-o-q because of lower average selling price ("ASP") of coke. In 3Q10 ASP of coke was lower at RMB 1,680 per tonne as compared with ASP of coke in 2Q10 which was higher at RMB 1,873 per tonne (a reduction of 10.3% q-o-q). Favorable prices seen in some of the by-products managed to some extent cushion the drop in revenue even though there was a big drop in average coke price as mentioned above. Average running production capacity in both 3Q10 and 2Q10 were approximately 87%.

Cost of goods sold:
In 3Q10, our main raw material's (coking coal) price continued to ease and was lower at RMB 1,210 per ton on q-o-q as compared with 2Q10 which was slightly higher at RMB 1,308 per ton. It depicts a drop of 7.5%.

Bottom line:
Obviously, in 3Q10 SHA suffered margin squeeze as average selling price of coke fell by 10.3% q-o-q as compared with the average purchasing price of coking coal which dropped by only 7.5%. Therefore, in 3Q10 SHA registered lower gross profit margin of only 1.9% as compared with 2Q10's gross profit margin of 3.2%. During the quarter under review, the strengthening of Ringgit against RMB q-o-q further reduced our translated profit because SHA reports its figures in Ringgit. SHA managed to report a small net profit of RM 1.0 million in 3Q10.

As at 30 September 2010, SHA's net cash position stood at RM 25.7 million and net asset per share at RM 0.61. Also, stock turnover, debtors' and creditors' turnover period remained below 30 days.

Industry updates:
Steel: China continues to be faced with oversupply of steel (high level of inventory) and an imbalanced supply/demand of steel situation. On 15 July 2010, the Ministry of Finance of China removed the export rebates of more than 50 types of steel products and non-ferrous metals. The move (the Chinese government's 1st policy adjustment in foreign trade since the September 2008 financial crisis) is intended to reduce excess capacity in the steel sector especially those involved in heavy pollution and emission ones. The Chinese government will continue to ban new capacity expansion plans in the steel industry until the end of 2011. The on-going effort by the central government to step-up the consolidation of steel industry (closing down inefficient ones and encourage M&A among one another) should augur well for the industry in long term.

Economic update:
China GDP grew slightly lower at 9.6% in 3Q10 as compared with previous sequential quarter of 1Q10 of 11.9% and 2Q10 of 10.3%.Domestic demand remained strong as witnessed by retail sales up by 18.6% y-o-y in October 2010 and automobile sales expanded by 32.2% y-o-y in October 2010. China remains to be a favorite foreign investment destination as FDI into China up 7.9% y-o-y to USD 7.66 billion or rose for the 15th consecutive month. (FDI: September 2010 + 6.14% y-o-y). The Central Bank of China increased benchmark interest rate by 25 basis point on 19 October 2010 to cool down the over-heated real estate market and rising inflation.

With the general gradual restoration of the world economy, particularly those in the Asia Pacific region, the steel industry, and thus that of coke, is expected to be resurrected in the near future.