Global Bio-chem Technology, one of the mainland's largest corn-based biochemical product makers, plans to spend up to HK$6 billion over three years to expand its corn refining and downstream products capacity.
The company, whose plants are in Shanghai and Jilin and Liaoning provinces, aims to use corn to replace crude oil as a raw material to produce a range of chemicals used in various manufacturing sectors.
Co-chairman Liu Xiaoming unveiled the expansion plan after the company posted an 88.23 per cent jump in net profit for last year to HK$943.48 million on the back of a one-time gain from the spin-off of a corn-based sweetener unit and expansion of output capacity.
Excluding a HK$270.91 million gain from the spin-off of Global Sweeteners in September last year, net profit would have risen 34.18 per cent to HK$672.57 million. Turnover rose 43.3 per cent to HK$6.79 billion.
Gross margin narrowed to 23.48 per cent from 25.44 per cent in 2006, due partly to a temporary need to buy corn-based sweeteners to produce amino acids before the completion of a refinery last year.
A 10 per cent rise in corn kernel costs last year to 1,430 yuan (HK$1,595) a tonne also crimped profitability. Corn prices rose slower on the mainland than in international markets as the country abolished subsidies and imposed export tariffs last year.
Mr Liu said the company had sufficient reserves for downstream chemicals production until October and was confident of reversing the margin erosion of the past two years.
The company plans to process 2.4 million tonnes of corn this year, up from 2 million tonnes last year.
It has received approval from the industry regulator, the National Development and Reform Commission, to build a corn refinery with annual capacity of 1 million tonnes in Changchun, Jilin. Costing 1 billion to 1.5 billion yuan, the plant is due to come on stream in the first half next year.
Capacity would be expanded to 1.7 million tonnes a year in two to three years, Mr Liu said.
The refinery will provide feedstock for planned plants capable of making 1 million tonnes of polyol, or sugar alcohols, which can be made into polymers used in shoe soles, fibres, adhesives and car parts. Its polymers are now made primarily from crude oil.
Last autumn, Global Bio-chem started up a 200,000-tonne-a-year polyol plant. Mr Liu said that with full utilisation, the plant's gross margin could be raised to 25 per cent this year from 8 per cent last year.