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Skyworth Heads into Real Estate Sector

Skyworth Group, China's third-largest TV maker, has pumped a total of 1.05 billion yuan (US$127 million) into a real estate project in Sanya, South China's Hainan Province.

It is widely seen as a landmark move that renews Skyworth's attempts to diversify its business after it failed to make an impact in the personal computer (PC) market in 2002.

The project is being operated by Skyworth Hongzhou Real Estate, a joint company in which Skyworth has 51 percent stake and Shenzhen-based Hongzhou Real Estate holds the remaining 49 percent.

Sources close to the project revealed that Skyworth is considering listing the joint company in Hong Kong at "a proper time."

Times Coast, as the project is temporarily named, is a comprehensive construction package including entertainment centers, hotels and residential buildings that cover an estimated 340,000 square meters.

"This is the largest urban reconstruction project in Hainan," Tang Renxian from the Shenzhen Hongzhou Real Estate told China Daily.

"The whole project will cost an estimated 15 to 20 billion yuan."

The first phase of the construction officially started earlier this year. The initial project includes a fitness center, a hotel and residential buildings, and is expected to be completed in one or two years.

Although the project is big, Skyworth remains low-key about its moves into the real estate sector.

Skyworth and Hongzhou both asserted that the project has nothing to do with the Hong Kong-listed Skyworth Digital Holdings, Skyworth Group's leading company.

"We can say the Times Coast project has no link with our listed company for the time being," said Sun Weizhong, brand director of Skyworth Group. But he also confessed it will be hard to say so in the future.

Sun told China Daily the whole project is more like a personal investment by Skyworth President Stephen Wong than a corporate move.

Analysts say Skyworth's reluctance to hoist a real estate banner high might be because of its bitter experience of entering the PC market two years ago.

The TV giant had planned to offset its huge losses in its TV business with earnings from the PC market.

Unfortunately, Skyworth fell victim to a sectoral cold front from 2000 to 2002 that swept through the IT industry and led to the closures of many PC suppliers.

The TV maker soon decided to retreat from the PC market and focus on its traditional mainstay.

"Nobody wants to make the same mistake twice," said industry analyst Zhang Yan. "Signs show us that this time Skyworth is cautiously rolling out its lofty real estate plan."

Skyworth's decision to break into the real estate business might be a wise move, against the backdrop of a bullish real estate sector and a sluggish TV market.

Long-term price wars and international trading protectionism have devoured profits for China's TV producers.

"The TV sector as a whole delivers low profits," Zhang said.

Even the high-end TV market, that Skyworth and many other TV makers are pinning high hopes on, is still underdeveloped.

China is planning to eliminate analog TV networks and set up a digital TV network by 2015.

However, analysts cautioned enterprises to wait for the market to become mature before trying to cash in substantially.

Compared to the sluggish TV market, real estate offers different scenarios.

Despite warnings of bubbles and overheating investment in the sector as a whole, the Times Coast project seems profitable.

"The returns are considerable," Tang said. "The whole complex neighbors the sea, a perfect location."

The average price for waterfront housing in Sanya stands at 4,000-5,000 yuan (US$484-606) per square meter, Tang said.

(China Daily March 22, 2004)

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