Cotton company gets into a HK$171m spin

PUBLISHED : Tuesday, 28 June, 2011, 12:00am
UPDATED : Tuesday, 28 June, 2011, 12:00am


Golden Shield Holdings (Industrial), a Shaanxi manufacturer of spun cotton, said yesterday it planned to raise up to HK$171 million from an initial public offering in Hong Kong.

The company said it proposed to issue 245 million shares at an indicative price of HK$0.7 per share. The public offering begins today and ends a week tomorrow.

Affected by rising price of lint cotton last year, the company's net profit slid to 97.4 million yuan (HK$ 117.2 million) from 99 million in 2009, though its revenue rose to 710 million yuan from the previous year's 554 million. The gross profit margin decreased to 22 per cent from 27.6 per cent in 2009.

Executive director Chen Binghui said the company was following prices on the lint cotton market closely. He said: 'To offset the impact of rising cotton prices, we store up reserves when the price is low.' He also indicated the increased costs could be passed on to clients, saying: 'When the water level is higher, the boat will be higher too.'

Golden Shield said in the first five months of this year its output of spun cotton rose 14 per cent year-on-year, while the price of its products jumped 29 per cent.

The company is currently producing cotton yarns and grey fabric and will continue expanding its cotton yarn business, especially combed cotton yarns, whose profitability was higher. Cotton yarn contributed 70 per cent to revenue last year, compared with 33 per cent a year ago.

Last year the revenue contribution from combed cotton yarn was 14 per cent, up from zero in 2009. The gross profit margin of combed cotton yarn is 25 per cent and the company said with a growth in production, the figure could be higher this year.

The company said it would pump 56 per cent of its IPO proceeds into expansion of production facilities.

Golden Shield said it would expand its plant in Yongle county, Shaanxi, to double its existing capacity by adding 32,700 spindles.

Twenty four per cent of the proceeds will be spent on upgrading production facilities and 17 per cent will be used to maintain a 'reasonable' level of lint cotton reserves.