Wednesday, March 3, 2021
Martin Hennecke
HKEx Stock Code : 01366 
Corporate Profile
The Group is one of the largest manufacturers of wires and cables for power transmission, distribution systems and electrical equipment in China. The Group's products are widely used in power and other general industries, including metals and mining, oil and gas, transportation, shipbuilding, construction and others.

Business Review - For the year ended December 31, 2012

In 2012, the change of global economy has its complicated and profound influence worldwide. Countries are all facing new challenges as well as opportunities of reversing the economic decline. In early 2012, the global economy started with the on-going downturn from 2011 and finally ended with a dramatic falling after months of slow recovery. As a whole, 2012 economic recovery was full of difficulties. International agencies like the United Nations, the World Bank and the International Monetary Fund reduced the economic growth estimates several times within 2012. Following 2008 and 2009, 2012 became the third one having the lowest economic growth during the last 10 years. The serious employment issues and debt problems spread out in various countries and regions of the world owing to the continued stagnant of the economic development which at the same time resulted in the increase in trade disputes and drastic fluctuation in commodity prices. Weak demand of major economies combined with further liquidity released by developed economies, the international financial market was going through a seldom turmoil. Developed countries struggled in the downturn of economic growth while the emerging economies also cannot get rid of a general slowdown. Investment and consumption fatigued so that the decline in international trade, the conflict and protectionism has surfaced.

China's economic development grew beyond expectation negatively. The third-quarter GDP falling to 7.4% was lower than the government proposed target of 7.5%. According to the cumulative value in parallel quarterly GDP, the economic growth rate was all the way down to 7.4% of the third quarter in 2012 from 11.2% of the second quarter in 2010. As the average economic growth rate between 2001 and 2010 was 10.5%, China's current one has been significantly lower than the average level in the past decade. But when the unexpected downturn appeared in the second and third quarters in China, there was no sign of large-scale unemployment and deflation. The consumption continued to rise, with the significant growth of investment in infrastructure construction and adjustment of real estate policy enabled the economic growth to rebound after reaching the lowest value in September 2012. Considering the political factor as the smooth staging of the 18th national congress of the central committee, and the sustained growth of consumption, China's economy returned to a recovery track in the fourth quarter of 2012.

Despite the adverse economic sentiment in 2012, the demand for wires and cables remained stable. This is due to the fact that wires and cables are widely used in multiple facets of the economy. They not only provide important support to various industries, national defense and significant construction projects, but also form the foundation for the functioning of modern economies and societies. China's increasing electricity consumption also supported a steady growth of the wire and cable industry in the past and for the future.

The Group's power cables continued to be the Group's key revenue contributor (accounted for approximately 69.1% of total revenue in 2012 and 66.2% in 2011) and its gross profit margin improved from approximately 15.9% in 2011 to approximately 17.1% in 2012. This was attributed to the increase in sales of higher-end products such as ultra-high voltage cables which had a higher gross profit margin than other power cable products.

Business Outlook - For the year ended December 31, 2012

The prospects for China's economy in 2013 will be full of variables under the complex international economic situation, but the Group has seen a glimmer of hope ahead. Although the slow growth of the world economy is inevitable, the recovery is expected to accelerate in 2013.

The Group operates in the wire and cable industry, which is the second largest industry after motor industry, representing one-fourth of the production capacity of the PRC electronic engineering industry and is considered to be the ¡§vascular¡¨ of the nation's economy. In recent years, as the Chinese economy keeps growing, the Chinese wire and cable industry also develops violently. At the end of the ¡§Eleventh Five-year¡¨ the national production value of the wire and cable industry reached RMB500 billion, the scale of industry was among the top in the world, and the overall standard of the products has also reached an advanced level around the globe. During the ¡§Twelfth Five-year¡¨ period, with the increase in capital investments in various sectors, it is expected that the wire and cable industry will maintain its rapid development and capture more market opportunity.

Wire and cable industry faces the opportunity of the new model of smart grid construction and the urbanisation of rural area of the PRC. Recently, the State Grid Corporation of China and the China Southern Power Grid announced transformation plan of the grid in rural area and investment budget during the ¡§Twelfth Five-year¡¨ period, they decided to implement the new phrase of transformation and upgrade project for the grid in rural area. State Grid Corporation of China will arrange RMB410 billion on the transformation of the grid in rural area, and the proposed amount of investment made by the China Southern Power Grid will be RMB111.6 billion, the total amount will be RMB521.6 billion. Based on this scale, the investment amount of the new phrase of transformation and upgrade project for the grid in rural area for the first three years will be more than RMB300 billion. As the transformation of grid in rural area goes further, wire and cable industry will enter into a new period of development. This will be a good opportunity and positive message for the electric wires production and selling enterprises which act as the major provider of the project for the grid in rural area.

Ultra high voltage grid network will be a vital investment direction and increment of the PRC grid during the ¡§Twelfth Five-year¡¨ period. According to the planning of the State Grid Corporation of China, in 2015, the ¡§Three China¡¨ ultra high voltage grid network will be established in Northern China, Middle China and Eastern China, forming the ¡§three vertical, three horizontal and one ring grid¡¨ network system. In the coming three years, the investment amount of ultra high voltage grid network can reach RMB270 billion, which is more than 13 times of the approximately RMB20 billion made in the ¡§Eleventh Five-year¡¨ period. This will provide enormous room for the development of the wire and cable industry. Large scale enterprises which have better branding effect, production capacity and technical know how in the PRC and with absolute competitive advantage in the industry will directly benefit from it.

Maximising the shareholders value has always been the development ideology of the Group. By capturing the forthcoming opportunities in economic recovery and the increase in infrastructure investments in China and emerging countries, it is expected that the Group will benefit from the change in momentum of the economy. The Group's new workshops for manufacturing aluminium alloy products and double capacity conductors have commenced commercial production and will deliver new revenue stream to the Group. Also the new production lines in South Africa will not only enhance the Group's production capacity but also strengthen the Group's presence in South Africa. The Group will also expand strategically on its overseas sales by targeting potential emerging countries. In China, apart from maintaining the Group's organic growth as in the past, the Group will seek for new opportunities that can bring in new product offerings, new technology and/or new customers to the Group by means of strategic investment or acquisition. Through both organic and nonorganic growth, the Group has confidence to further enhance its market share and maintain the Group's leading position in the industry.

Source: Jiangnan Group (01366) Annual Results Announcement
Chairman Rui Fubin Issued Capital (shares) 3,077M
Par Value HKD 0.01 Market Capitalisation (HKD) 4,000M
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