Huafeng Textile International Group, one of the biggest fabric processing firms in Fujian, is expanding into lower-cost neighbouring Jiangxi province and spurring sales to the burgeoning mainland market to weave its future.
Facing restrictions on energy-consuming, resources-intensive and highly polluting industries in coastal regions, the Shishi-based textile firm has earmarked HK$150 million for a yarn-spinning factory in Boyang Xian, Jiangxi.
Lured by Boyang Xian's tax incentives and lower labour, utilities and land costs, the new plant would fuel the engine of growth in the second half of next year when commercial production came on stream, Huafeng chairman Cai Yangbo said.
The future of the mainland's textile industry is clouded by the European Union's new regulatory regime - known as Reach - on chemical substances for apparels, adding costs and risks for textile and garment makers.
Pressure to perform also comes from a promise to achieve net profit growth of 20 per cent annually in the next three years. Korean investors bought HK$288 million worth of Huafeng's depositary receipts, scheduled to debut on the Seoul stock exchange today.
'Much of the profit growth will come from lowering operating costs and raising productivity,' Huafeng financial controller and company secretary Sonny Li Mow-ming said. 'We also want to increase domestic sales.'
Funded by Korean depositary receipts, Huafeng's HK$150 million investment in Boyang Xian includes the purchase of a 660,000 square metre parcel of land, half of which will be for the yarn-spinning factory, with yarn production capacity of 20,000 tonnes a year and investment in environmental protection. It will raise existing yarn production 50 per cent.
When running at full capacity by the end of next year, the new factory would be able to generate a profit of 80 million yuan on sales of 400 million yuan annually, Mr Cai said.
He added that Boyang Xian, which is enticing foreign investors, had abundant supply of labour with the average wage at about 500 yuan.
On the back of the state's policy to spur domestic consumption, Huafeng plans to increase domestic sales, which accounted for 52 per cent of sales of HK$321 million in the six months to September.
Interim profit grew 10 per cent to HK$54 million.