Friday, March 29, 2024
 
Columnist
Martin Hennecke
 
TIANGONG INT'L
HKEx Stock Code : 00826 
 
Corporate Profile
The principal activities are the production and sales of HSS, HSS cutting tools and die steel.

Business Review - For the year ended December 31, 2012

Despite the adverse macro backdrop, the Group achieved moderate growth in its operating results for the year under review, which clearly reflects the Group's unparalleled leadership in the industry as well as the competitiveness and high quality of its products. During the period, the Group remained the largest manufacturer of HSS as well as a leading manufacturer of HSS cutting tools and die steel in China.

The Group's core products were widely recognized by its strategic partners spread across different sectors both in China and overseas. Moreover, we acquired a company that produces cutting tools in the auto sector in early 2013, which marked a milestone for the Group's successful penetration into China's auto sector and should give a strong boost to the Group's production of cutting tools and HSS products. As to the die steel segment, some of the die-steel products have been sold to auto manufacturers in Europe through distributors, which again showcases our international competitiveness. On the HSS segment, the Group recently developed a new key account in Russia in 2013 with expected annual HSS demand of 1,000 tons.

During the period under review, the Group continued to improve efficiency by expanding production lines and enhancing automation. Expansion of its taps production line was completed and commenced production. Its total investment amounted to RMB42 million. With an annual capacity of 12 million pieces, it is now one of the largest taps production lines in China.

The Group adhered to a low-carbon, green and sustainable development strategy. In 2012, it built an environmental-friendly natural gas heating system and to dismantle all chimneys. In addition, it spent over RMB6.5 million on a large-scale sewage project. The Group has made continuous efforts in environmental protection.

In 2012, all product segments achieved healthy and stable performance. For HSS and die steel, we saw increases by sales volume of approximately 12% and 19%, respectively, which showcased the Group's strong influence in the markets. Nevertheless, the increase in sales volume was offset by the decrease of average selling price impacted by decline of raw materials prices as well as a change in product mix to lower value products. For HSS cutting tools, there was an increase in domestic demand but was offset by the decrease in export sales.

HSS ¡X accounted for 35% of the Group's revenue in FY2012

HSS is a widely used alloy in specific industrial applications including automotive, machinery manufacturing, aviation, and electronics industries. Its production involves various rare metals, such as tungsten, molybdenum, chromium and vanadium.

HSS operation was the greatest revenue contributor for the Group during the year under review. Revenue from HSS decreased by 5.7% to RMB1,092,587,000 (2011: RMB1,158,264,000). Despite a slowdown in China's industrial output, HSS sales to domestic market remained resilient, reflecting the Group's leadership in home market and sound operation model. The increase in sales quantity of HSS was partly offset by a decrease in overall average selling price.

HSS Cutting Tools ¡X accounted for 18% of the Group's revenue in FY 2012

HSS cutting tool products can be categorized into four major types ¡X twist drill bits, screw taps, end mills and turning tools. All of these are used in industrial manufacturing. The Group's vertical integration extending from upstream HSS production to downstream HSS cutting tool production brought us a significant cost advantage over our peers.

In 2012, revenue generated from HSS cutting tools declined by approximately 7% to RMB567,297,000 (2011: RMB609,675,000). With a limited life span, HSS cutting tools are effectively ¡§consumables¡¨ in industrial production and hence their demand is relatively inelastic even during market downturns. Export sales, which accounted for 60% of the segment revenue, decreased by 16%. On the domestic market, the Group retained the growth momentum and achieved a sales growth of 11%.

Die Steel ¡X accounted for 33% of the Group's revenue in FY 2012 Die steel is mainly used in die and mould casting as well as machining processing. Many different manufacturing industries require moulds including automotive industry, high-speed railway construction, aviation and plastic product manufacturing. Similar to HSS, its production involves the addition of various rare metals such as molybdenum, vanadium and chromium.

Titanium Alloy

Titanium alloy is lighter, stronger and has a higher corrosion resistance compared to aluminum alloy. Thus, it finds applications in aviation, marine engineering and the medical industries. Its production involves sponge titanium as well as various other rare metals.

With an initial annual production capacity of 1,500¡V2,000 tons, the titanium production line commenced production at the end of 2011. During the period, titanium alloy contributed approximately RMB33 million to the Group's revenue. The Group started by producing titanium ingots and rods in the first phase, and will gradually extend to higher margin products such as titanium pipes and flat sheets in the near future.

Titanium alloy segment is currently in the market development stage. Nevertheless, satisfactory results have been achieved from this segment. Aerospace, chemical processing, military and other industrial application are the main sectors consuming titanium alloy. The Group has been actively seeking business opportunities in different potential areas. The Group aims to offer a broader range of products with higher grades and specifications to meet demands from various industries. It is expected that titanium alloy will soon become another pillar revenue source for the Group in the future.

The production of titanium and titanium alloy is both capital and technology intensive. Thus, it is an industry with high entry barrier. Currently, only a limited number of companies in China are engaged in titanium alloy production.

Business Outlook - For the year ended December 31, 2012

Our healthy and stable financial performance in 2012 amid an adverse macro backdrop is a testimony to our unrivalled leadership in the HSS industry and effective internal cost control derived from our unique vertically-integrated business model.

The Group remains optimistic towards 2013 and will push ahead with its business expansion and focus on penetrating into different industries and exploring new markets. It aims to further expand its footprint on other countries such as Russia, Italy, South Africa and Brazil by setting up sales representative offices. In those countries, we see accelerating urbanization and industrial development, which will subsequently fuel the demand of HSS, HSS cutting tools and die steel. The Group believes that advancing into these markets will broaden our revenue base and generate promising return.

Apart from the traditional core segments, the Group is confident that our recently developed titanium alloy business will be a growth engine in the near future. Although titanium is often more expensive than other competing metals, it is a better alternative in industrial and aerospace applications because of its strength, durability and overall performance. Through research and development as well as technology enhancement, we will continue to develop the new material industry in a prudent manner with a focus on titanium alloy pipes.


Source: Tiangong Int'l (00826) Annual Results Announcement
Chairman ZHU Xiaokun Issued Capital (shares) 1,941M
Par Value USD 0.0025 Market Capitalisation (HKD) 4,038M
 
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