Profit surges for plastic pipe producer

PUBLISHED : Monday, 06 September, 2010, 12:00am
UPDATED : Monday, 06 September, 2010, 12:00am

China Liansu Group Holdings announced a 189.2 per cent increase in profit attributable to shareholders, from 167 million yuan (HK$191 million) to 483 million yuan, for the six months ended June 30.

'The group will continue to participate in large infrastructure projects to strengthen our co-operation with government authorities, public utility entities and well-known enterprises, and enhance our corporate image,' says Wong Luen Hei, chairman, executive director and founder of the company. 'We will also increase our spending on advertising and commence targeted marketing activities, with a plan to apply for more intellectual properties.'

The plastic pipe and pipe fittings manufacturer recorded a 143.6 per cent increase in gross profit to 882 million yuan, compared with 362 million yuan a year earlier, while gross profit margin increased seven percentage points from 19.5 per cent to 26.5 per cent.

The increase in profit was attributable to an increase in average selling prices of products and a drop in the cost of raw materials, while the group continued to improve its production efficiencies and expanded its production scale and market share on the mainland.

Moreover, the group was able to maintain bargaining power in negotiating selling prices and maximising discounts on the prices of all raw materials through centralised procurement.

Selling and distribution costs rose by 54.8 per cent to 130 million yuan, up from 84 million yuan a year earlier. This was due to an increase in costs of marketing and packaging as a result of increased sales.

Administrative expenses rose by 85.2 per cent from 54 million yuan to 100 million yuan as a result of an increase in professional services and consultation fees incurred in preparation for the public offering of the group, and an increase in salaries and benefits of administrative and management staff. The group's other operating expenses surged 236.4 per cent to 37 million yuan from 11 million yuan. These expenses mainly contributed to the group's research and development initiatives aimed at developing new products and introducing new production technology.

The expansion of production capacity and the extension of market coverage have provided strong momentum for the expansion of the group and its distribution network.

The expanded production and improvement in production efficiency and productivity resulted in a surge in effective semi-annual production capacity to 540,000 tonnes and a designed semi-annual production capacity to 1,020,000 tonnes. China Liansu's overall semi-annual production efficiency reached 75.9 per cent.

Growth was spurred by the group's large production operations on the mainland and nationwide sales network, its comprehensive range of products that helps to maintain strong brand recognition, and its research and development capabilities.

The central government has introduced initiatives to increase social awareness of saving energy and environmental protection by encouraging the use of plastic pipes.

'The acceleration of urbanisation in China, the use of plastic pipes in place of conventional pipe systems and the continuing growth of substantial infrastructure investments have driven a sustained increase in the demand for plastic pipes,' Wong says.

Moreover, regulatory and fiscal policies targeted specifically towards curbing overheated property prices led to an increase in the supply of houses.

As a result, there was no material adverse effect on the sales volume and selling prices of the company's products, Wong says.

China Liansu placed increasing emphasis on production and operation, and project construction. Sales volume for the six months rose 75.5 per cent to about 351,000 tonnes. Headquartered in Shunde in Guangdong province since 1996, the group is to add new production bases in Changchun and Urumqi. They are under construction and will begin operations in the fourth quarter this year and first quarter next year respectively.

The group estimates the production capacity of the new plants will reach 34,000 tonnes and 66,300 tonnes in 2012 respectively.

China Liansu has plans to identify suitable land in Sichuan and Shaanxi to enhance its coverage on the mainland.

It has 11 operational facilities in eight provinces, manufacturing more than 70 series and 7,000 specifications used for water supply, drainage, power supply, telecommunications, agriculture, gas supply, floor heating and fighting fires.

The group owns 29 sales offices and works with a network of more than 600 independent distributors.

Close co-operation with distributors has enabled the group to achieve growth by leveraging on the financial and management resources of distributors and their expertise in local markets.

'Since our establishment, China Liansu has focused on creating a reputable Chinese brand and has built a good reputation in this regard,' Wong says.

'The group's objective is to strengthen our leading position in the PRC plastic pipes market through the Liansu brand and enter new areas by expanding our distribution network.

'We will continuously accelerate building the Liansu brand so as to increase customer satisfaction and loyalty. In addition to organic growth, we will consider new business opportunities and expanding our operations through acquisitions in order to bring greatest returns to the investors.'

The successful listing of China Liansu on the Hong Kong stock exchange in June helped the group raise HK$1.82 billion by selling 750 million shares at HK$2.60 each.