Friday, March 29, 2024
 
Columnist
Martin Hennecke
 
XINYI GLASS
HKEx Stock Code : 00868 
 
Corporate Profile
Principally engaged in the production and sales of float glass products, solar glass products, automobile glass products, construction and a variety of related products in the PRC.

Business Review - For the year ended December 31, 2012

Opportunities in the recovery market

In 2012, the business segments of the Group grew at different pace. The overseas sales as well as the PRC domestic sales of the Group recorded satisfactorily growth. The average selling prices of the high-quality float glass and the solar glass products have been rebounded since the second half of 2012 following the significant decline in the first quarter of 2012. These two business segments recorded sales volume growth principally due to the additional production capacity in the Jiangmen, Wuhu and Tianjin production complexes and the overall selling price increases since the second quarter of 2012. In the construction glass segment, the sales of the Group also recorded a strong growth due to the increasing demand for energy saving Low-E glass in the construction industry in the PRC. The related production capacity of the Group's production complexes in Wuhu and Tianjin also increased. All of these factors contributed to the increase in the sales revenue of the Group by 18.9% to HK$ 9,785.2 million in 2012, as compared with the sales revenue of HK$8,226.7 million in 2011.

In 2012, the economy in the PRC continued to grow steadily. Following the industry consolidation in the traditional low season for glass industry during the first quarter of 2012, the level of demand increased and the selling prices rebounded since the second quarter of 2012.

The European debt crisis also hindered the recovery of the local economy in these countries, as well as the level of demand for automobiles and new houses and the level of subsidy to solar energy sector in those countries. Hence, the solar glass business segment of the Group experienced significant price competitions during the period from the fourth quarter of 2011 to the end of first quarter in 2012. There has been a solid rebound since the second quarter of 2012, which accelerated the sales volume of the solar glass products of the Group in the year.

Nevertheless, the Group, being a leader in the global glass industry, continued to strength its leading position through the benefits from the economies of scale in the production of glass products. This was accomplished through strategic and timely expansion of the production capacity and construction of new production complexes using more efficient production process. The Group also implemented a series of enhanced control measures on the level of consumption and recycling of the principal raw materials and the production schedules, so as to avoid excessive accumulation of inventory. On increasing the sales, the Group has successfully developed and launched a wide range of high value-added glass products and adopted flexible pricing and marketing strategies to take advantage of the supportive measures implemented by the Twelfth Five-Year Plan of the PRC government.

Proactive sales strategies to explore new opportunities in the global market

The ongoing European financial and debt crisis and the unstable geopolitical environment in certain countries in the Middle East have created a totally different global economic landscape. In response to these changes, the Group has penetrated new overseas markets and adjusted its pricing and sales strategies from time to time to attract new customers in different industries.

The Group is in the process of constructing a new automobile glass production complex in Tianjin to enhance the automobile glass export capability and market coverage. Three new Low-E glass production lines will be installed in the second half of 2013 to enhance our coverage in the PRC and overseas markets. Currently, the Group sells glass products to more than 130 countries.

Better productivity, technoloy and economies of scale to mitigate the cost pressures

The Group's solid experience in operational management, combined with the continuous improvements in the production process, enhance its productivity and yield rates, both of which reduce the overall production and energy costs. The Group's daily production capacity of high-quality float glass increased from 8,100 daily melting tonnes at the end of 2011 to 9,400 daily melting tonnes by the end of 2012. The economies of scale of the Group allow it to reduce its raw material costs, the average fuel consumption rate, and the fixed costs. These mitigate the impact of any additional potential cost pressures on the gross profit margin in the future.

Since the end of 2011, all of the Group's high-quality float glass and solar glass production lines have been using environmental-friendly and more cost effective natural gas as fuel.

In addition to the Dongguan, Jiangmen and Wuhu production complexes, the Group also installed a new environmentally-friendly low temperature recycling residual heat power co-generation system at the Tianjin production complex in 2012.

The Group installed two roof top solar power systems (phase I and II) at the Wuhu production complex under the Golden Sun programme in the PRC during the year. The Group plans to build five new roof top solar power systems at different production complexes in Dongguan, Jiangmen, Tianjin, Yingkou, and Deyang.

The above apparatus will reduce the carbon emission levels and optimise the energy cost structure of the Group.

Diversified and high value-added product mix enhanced the overall competitiveness

In 2012, the revenue generated from the Group's automobile glass, construction glass, high-quality float glass and solar glass businesses achieved satisfactory growth. This performance demonstrates that the Group's diversified business and high value-added product mix can mitigate the impact of selling price decreases in any one business segment. With the new product, ultra-thin electronics glass, to be launched in the summer of 2013, it would be the future growth driver to the Group.

Also, the Group's strategic expansion plan for its production complexes in the five major advanced economic zones in China - the Pearl River Delta, the Yangtze River Delta, the Bohai Economic Rim, the North Eastern and Southwestern China - is in progress. This strategy is expected to further enhance the Group's overall competitiveness to cope with the challenges ahead.

Expanding production capacities to capture to rebound in PRC market

The Board is optimistic that there will be a rebound in the PRC market in 2013. The Group plans to increase the annual production capacity of the automobile glass by 12% from 12.5 million pieces to 14.1 million pieces while the annual production capacity of the construction glass will also be increased by 40.5% to 26.0 million sqm.

The float glass annual production capacity is expected to increase from 3,362,000 daily melting tonnes to 3,583,000 daily melting tonnes in 2013. The solar glass' annual production capacity will increase from 548,000 daily melting tonnes to 684,000 daily melting tonnes in 2013. An estimate of capital expenditure of approximately HK$1.8 billion will be incurred in 2013. The estimate is subject to change to reflect the building and equipment installation progress of respective projects. The Group will also look at the business opportunities in solar related downstream sectors, such as solar power plant in China.

Business Outlook - For the year ended December 31, 2012

The Group will continue to be flexible in production management and work so as to improve the operational efficiency for the purpose of maintaining the competitiveness amongst the world's leading glass manufacturers against the backdrop of the unfavourable global economic environment.

Volatility in the demand and the selling prices is expected to continue in the float glass segment in the near future. Nevertheless, the PRC's national affordable housing scheme and the wider application of energy saving Low-E glass will increase the demand for float glass in the near future. The Directors are optimistic about the automobile glass and the construction glass businesses in future.

The European debt crisis is expected to continue. As the European Union is the major market for solar products, the Directors anticipate that market volatility will continue in the near future. Hence, the Group intends to focus on the PRC, Japan and North American markets. Under the Twelfth Five-year Plan, the PRC government encourages the use of renewable energy. The Directors expect that solar energy panels will be increasingly popular in the PRC. The increase in the level of demand will result in decreasing cost of production and installation of solar panels, which, in turn, is expected to stimulate the level of demand for solar glass products.

The Group will continue to devote its efforts in strengthening the research and development capability for new glass products, enhancing the product quality and boosting the production efficiency to maintain its competitiveness and increasing its profit margin.

The Group is constructing an ultra-thin electronic glass production line in Wuhu to capture the demand from the expanding market for electronic touch screen products. These new glass products are expected to become another future growth driver for the Group.

The Group will continue to tackle the challenges amidst uncertain economic environment and optimise its efficiency and profit margin through effective leadership and the continued support of its customers. The Directors believe that this strategy will enable the Group to reap the benefit from any emerging business opportunities. The Directors are confident on the Group's prospects. The Group will continue to adopt proven business strategies to maintain and strengthen the growth momentum of the Group. To maintain its industry leading position, the Group is striving to continue efforts to expand its presence in the global glass market across a wide spectrum of industries.

Source: Xinyi Glass Holdings (00868) Annual Results Announcement
Chairman LEE Yin Yee Issued Capital (shares) 3,783M
Par Value HKD 0.1 Market Capitalisation (HKD) 28,032M
 
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