Friday, March 29, 2024
 
Columnist
Martin Hennecke
 
PAN ASIA ENVIRO
HKEx Stock Code : 00556 
 
Corporate Profile
Principally engaged in the sale of pipes, water treatment and flue gas treatment products and equipment, as well as undertaking of environmental protection (¡§EP¡¨) construction engineering projects, provision of EP related professional services and manufacture of EP construction materials.

Business Review - For the year ended December 31, 2012

As an integrated environmental protection (¡§EP¡¨) services and eco-friendly construction materials provider in the PRC, the Group mainly designs and manufactures water and flue gas treatment products and equipment. The Group also sells pipes, undertakes EP construction engineering projects and provides EP-related professional services. To further develop EP-related businesses with high growth potential to broaden its income stream, the Group has actively expanded the production scale of WWCB in accordance with its strategy while still maintaining its focus on the sales of pipes, flue gas and water treatment products and equipment in order to generate stable income.

Sales of EP Products and Equipment

During the year under review, sales of EP products and equipment recorded a turnover of approximately RMB402.9 million, accounting for around 98.1% of the Group's total turnover.

Sales of Water Treatment Products and Equipment

The water treatment systems produced by the Group are mainly used to process industrial and urban wastewater. During the year under review, the water treatment business generated a turnover of approximately RMB317.2 million, accounting for approximately 77.2% of the Group's turnover.

Although favorable PRC government policies accelerated the demand for water treatment system, competition within the industry was fierce. As a result, enterprises reduced their prices in order to compete, which led to a significant decrease in gross profit margin. During the year, the Group completed 43 water treatment related sales contracts. The Group intends to secure more water treatment projects with greater profits to maintain a steady growth of the business.

Sales of Flue Gas Treatment Products and Equipment

The Group mainly provides flue gas desulphurisation (¡§FGD¡¨) and flue gas dentrification services to clients in non-ferrous metals, iron and steel, power generation, cement and glass industries.

Equipped with proprietary technology, the Group turned its focus from traditional power generation clients to those in the non-ferrous metals and the iron and steel industries. During the year under review, the Group completed 9 projects related to sales of flue gas treatment equipment, contributing a turnover of approximately RMB85.7 million, representing approximately 20.9% of the Group's turnover.

Sales of Pipes

The Group also produces fibreglass-reinforced plastic pipes with diameters of up to 2,000 mm at its Yixing workshop. The estimated total annual production capacity is approximately 172,680 metres. However, during the year, the Group relocated the workshop in a new production base in order to streamline management of all of its production lines. Therefore, the production of pipes was temporarily suspended during the year.

EP Construction Engineering Projects

Leveraging on its extensive industry expertise, professional research and development capabilities and technologies, the Group has been providing one-stop EP solutions to many clients. During the year, this segment recorded a turnover of approximately RMB6.1 million, accounting for about 1.5% of the Group's total turnover. Most of the projects in this segment spanned over different financial periods and are booked to the accounts according to stage of completion.

Provision of EP Related Professional Services

The Group, through its subsidiary namely Shanghai Environmental Engineering Design & Research Institute Limited (¡§SEEDRI¡¨), provides EP-related professional services to clients. With Grade A engineering design certificates, SEEDRI is qualified to undertake engineering design for all environmental projects. During the year, the segment recorded a turnover of approximately RMB1.6 million, accounting for approximately 0.4% of the Group's total turnover.

Sales of EP Construction Materials

The introduction of EP wallboard production lines from the Netherlands enabled the Group to expand into the eco-friendly construction materials business. During the year, most of the products were exported to Korea, and generated a turnover of approximately RMB200,000. The Group cooperated closely with a number of construction and design institutes, and established demonstration projects in Shanghai, Yixing, Jingmen and Xiamen, thereby raising the market's attention to this eco-friendly construction material. This segment started to generate income for the Group in the fourth quarter of 2012. As the business was still at the developmental stage, the revenue generated was relatively low when compared to the expenses incurred for developing the business during the year. However, the Board believes that continuing development of such new business would eventually be rewarding and beneficial to the Group as the revenue is expected to be growing in future.

Business Outlook - For the year ended December 31, 2012

Eco-friendly construction materials business ¡V a new growth driver with huge potential

Energy-conserving construction is an important element of the Twelfth Five-Year Plan programme. The Central Government is striving to accelerate the wide application of renewable energy resources in the construction industry, and promote the development and popularity of green construction. A range of policy initiatives were introduced by the government during the year. For example the ¡§Guide on Energy Conservation Reform of Current Residential Buildings¡¨ announced by the Ministry of Housing and Urban-Rural Development of China stipulates the implementation of energy-conserving residential construction reform in four areas including walls and roofing, heating systems, heat pipe networks and integrated energy saving. The Central Government is also imposing mandatory energy-saving standards on the construction of new buildings in cities and towns during the Twelfth Five-year Plan period, so as to increase the proportion of eco-friendly buildings to more than 30% by 2020.

In this regard, the Group has actively expanded into the eco-friendly construction materials business. It has introduced six EP wallboard production lines from the Netherlands to produce WWCB and large wall components, each with an annual capacity of 140,000 m3. WWCB is an ecofriendly inorganic energy-conserving construction material that is made from cement, eco-friendly fast growing timber, and non-toxic chemical addictives amalgamated through a highly pressurised process. This material is widely used overseas because of its distinctive heat retention, fire resistant and insect repellant properties, as well as being sound-proof, moisture-proof and mould-proof. It also does not contain formaldehyde or any other volatile organic compounds. The benefits of WWCB make it ideal for renovation and wall construction, in particular, for high-end residential and commercial buildings requiring high durability and energy saving in regions with greater weather and temperature fluctuations.

Among the six production lines, five are standard production lines that can produce WWCB of varying thickness from 10 to 100mm. The other large wall component production line principally manufactures 3m x 6m x 40cm large wall components which can be installed directly. It is the most advanced and fully automated production line in the world.

Two standard production lines began operation in 2012 and mainly manufacture 15 to 75mm thick boards in meeting market demand. During the year under review, the Group secured orders from overseas which started to contribute profit to the segment. The installation of three more standard production lines procured in late 2011 is expected to be completed in 2013. The additional capacity should further optimise the Group's workflow and boost production efficiency.

In addition, the large wall component production line completed its standard testing after the 2013 Chinese New Year. The engineering staff is starting trial production of products of 30cm and 22cm thickness in April. These products are exclusively produced by the Group and designed based on climate requirements in the PRC.

The Ministry of Housing and Urban-Rural Development of the PRC approved WWCB as a standard construction material with effect from 1 August 2012. The Group continued to work with large research institutes including Jiangsu Research Institute of the Building Science Co., Ltd. (¡§JRIBS¡¨) and China Academy of Building Research Institute of Building Design to test and verify the shape and specifications of the boards in compliance with the national construction requirements, and to optimise the specifications of the WWCB. The partners also provide working guidance for the Group's pilot and demonstration projects aiming to enhance the recognition of the products and such projects in the PRC. The Group is drafting the construction standards and commissioning standards for the applications of the products, and is applying for Grade A Fire Resistant Standard for wall materials, and expects to obtain the certifications in the first half of 2013.

The Group has already captured market attention through the completion of several demonstration projects in key targeted cities for development such as Shanghai, Yixing and Xiamen. At the same time, it is evaluating joint projects with potential customers, including government authorities and property developers. Several sample products have been sent for testing with the quotations submitted for reference. Looking ahead, in addition to building more demonstration projects in the PRC, the Group will also develop markets overseas to further promote this material.

As the market has begun to realize the features and benefits of WWCB, the Group believes this product has huge potential for future growth. The Group has established a sound sales network through its self-operated sales platform and distributors to promote this quality eco-friendly construction material which is highly recognised and accepted in overseas markets. The Group expects that the business will be an important income source when WWCB becomes more widely accepted and utilised in the market within the next five years.

Water and flue gas treatment business ¡V continues to bring stable revenue

In the ¡§Energy-saving and Environmental Protection Industry Development Programme under the Twelfth Five-Year Plan,¡¨ the Central Government indicated that the total production value of the energy-saving and EP industry will reach RMB4,500 billion by 2015. Of this total, approximately RMB816 billion will be invested into key pollution elimination projects with the aim to substantially reduce emissions of major pollutants. During the Twelfth Five-Year Plan period, revisions of 600 EP standards are expected to be completed, thereby creating a better national EP standard system. Moreover, the Ministry of Environmental Protection announced the imposition of special limits on emissions in February 2013, mainly targeting new projects in six heavily-polluting industries including thermal power generation, iron and steel, petrochemical, cement, non-ferrous metal and chemical industries as well as coal-fired furnace projects.

Because water treatment planning has been launched for a long time and the industry is more developed, the price competition is more fierce. Therefore, the Group will be more prudent in undertaking projects in the future. On the other hand, the Group is putting greater effort into developing the flue gas treatment business capitalizing on its proprietary technology and the advantage of one-stop production. The Group is also providing desulfurisation services targeting the non-ferrous metal and iron and steel industries among the above-mentioned six heavily polluting industries. Following the successful collaboration with Jinlong Copper Co, Ltd., the Group is discussing similar cooperation with several enterprises. The Group expects to finalise landmark projects within the coming one to two years so as to significantly increase the revenue contribution from the flue gas treatment business.

Currently, the Group has 52 uncompleted water and flue gas treatment contracts with a total value of approximately RMB478.9 million on hand. Looking ahead, the Group intends to expand its EP engineering business including large-scale industrial waste water and flue gas treatment, construction and operations projects, so as to expand its income stream and generate a stable cashflow.

In summary, the Group will expand steadily in two key areas of the EP industry, namely flue gas treatment and waste water treatment, and the eco-friendly construction materials business. The Group will leverage its proprietary technology for ongoing transformation of its business and capture the opportunities made available by the improving EP system in the country. This will be done in a bid to achieve better results to reward its shareholders and staff and strive to become the leading enterprise in the EP industry in the PRC. The management of the Group will unite together to collectively pursue innovation and development while working to ensure that the operations as well as its products comply with relevant standards. All these arrangements are expected to open a new chapter of growth for the Group in the future.

Source: Pan Asia Enviro (00556) Annual Results Announcement
Chairman Jiang Quanlong Issued Capital (shares) 800M
Par Value HKD 0.1 Market Capitalisation (HKD) 760M
 
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