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SCMP Reporter

STEEL products trader Van Shung Chong Holdings is facing a difficult market in China but is confident that strong demand from Hong Kong will support profits.

  Managing director Andrew Yao Cho-fai said his company was ready to benefit from the construction of the new airport and related developments.

 It recently secured a number of Chek Lap Kok airport-related contracts worth about $150 million, with a total of contracts-at-hand worth $600 million, he said.

 Those projects include the airport terminal building foundations; the Mass Transit Railway Corp (MTRC) contracts for Tai Kok Tsui station, the Kwai Chung viaduct, and the Tsing Yi and airport railway, and Lantau island airport railway.

  The list of projects also include phase two of the Hong Kong Convention and Exhibition Centre.

  Mr Mr Yao said the company was eyeing other related projects, including the MTRC Central station, the cargo maintenance building at the new airport, and the Tung Chung housing development.

 'The 10 core [airport] projects will bring a 20 per cent increase in local steel consumption,' Mr Yao said.

 Van Shung Chong has a market share of more than 30 per cent and supplied 300,000 tonnes of steel to Hong Kong last year. Mr Yao said its good relationship with large developers Cheung Kong, Hip Hing, Gammon, Henderson Land and the public sector was another reason for the steel trading company, which was founded 30 years ago, to be confident it would gain from a boom in the industry.

 The company recorded a growth in profits of 69 per cent in the six months to September 31, jumping to $27.1 million. Mr Yao was optimistic on the net profit growth in the year to March 31.

 'I hope we can maintain the momentum of the interim result [in the final result],' he said.

 The company's focus on steel stocking had given it advantages against competitors such as Shougang Concord International and Shiu Wing Steel.

 Stocking reduced the risk of price volatility and the company was able to provide steel with a fixed price.

 Mr Yao said the company was also able to maintain its profit margin, despite the price of steel jumping 10 per cent since August.

 It was gaining new supplies from sources other than Turkey, because prices there soared after the Turkish Government stopped subsidising the industry.

  The company hoped to benefit from the recent depreciation in the Mexican peso by obtaining more steel from the Mexicans.

 Van Shung Chong, described by analysts as stable and conservative, was cautious about its assault on the China market.

 Mr Yao, a member of the second generation of the Yao family now steering the company, said he was eager for a slice of the southern China market.

 The area provided plenty of demand for steel because of poor transportation from production areas in the north.

 The company refused to trade with mainland customers unless it was on a cash-on-delivery basis, and all transactions had to be carried out in US or Hong Kong currency.

 'We do not have a cent of bad debt,' Mr Yao said.

 He said the company acquired a 35 per cent interest in a pier in Shekou in January, aiming for a better distribution network.

 The firm hoped to expand the pier network to Guangzhou and Nansha.

 Mr Yao said last year was difficult for its Chinese business despite the firm achieving a profit growth on an increasing turnover.

 The China market would contribute about 40 per cent of the total turnover of the group, down from the 50 per cent expected. He said much of China's steel stocks had been 'digested'.

 'When we went to Shekou before, we could see piles of steel bars like an iron sea,' he said. 'But we didn't see that when we went there recently.'  The group was forging ties with the second largest maker of alloy in China - a joint venture with the Baoshan Iron and Steel Corp in November 1993, with the group owning a two-thirds stake.

 Mr Yao expected the joint venture to bring about a satisfactory return for the group in the financial year to the end of March.

 It was wary about diversifying into other products, including certain steel products with higher profit margins, plastics and machinery products.

 Mr Yao said the company was seeking opportunities in Singapore and Vietnam.

 Van Shung Chong has been one of the few newly listed companies able to avoid a slump in prices.

 The counter outperformed the main index by 29.59 per cent over the past 12 months with prices ranging from $1.22 to $1.70 on thin trading.

 Tai Fook Securities analyst Tony Yung said: 'The stock is very stable for long-term investment, but market sentiment in Hong Kong is not favourable for these kinds of stocks, which are not speculative enough.

 'That is why the turnover is so small.' 



Airport boosts Van Shung Chong