In my December 8 column "China now victim of own success", I made it clear that compounder Kingfa was bound to take a hit financially, for reasons including massive investment in real estate.

The moment of truth has arrived. Kingfa, China's largest domestic plastic resin compounder, issued a performance forecast on January 23, predicting a 30-70 percent drop of profits in fiscal 2008. Kingfa's net profit hit 396.5 million yuan (US$60 million) in 2007.

The Guangzhou-based company had been on a clean, upward growth trend since it went public in 2004.

Kingfa blamed the domestic and global economic downturn and the sharp fall of resin prices in the fourth quarter of 2008. It admitted that the company's real estate business has lead to a "comparatively large loss," as the price of its land reserve took a dive. Slow demand from the consumer market in the fourth quarter also affected the company's "main resin business."

Kingfa's compounding business is mainly serving the appliance and automotive markets, both of which are in a slump.

Analysts said the company predicted such a wide range (the 30-70 percent mentioned above) because of difficulty appraising the company's land reserve.

In the worst-case scenario -- if the company's upcoming annual report confirms a 70 percent decline -- Kingfa's 2008 net profit would end up at 119 million yuan (US$17 million).