Thursday, March 28, 2024
 
Columnist
Martin Hennecke
 
SINOTRUK
HKEx Stock Code : 03808 
 
Corporate Profile
Primarily engaged in the research, development and manufacturing of heavy duty trucks and related key parts and components, including engines, cabins, axles, steel frames and gearboxes.

Business Review - For the year ended December 31, 2012

Trucks Segment

During the Period, the Group's heavy duty truck sales slowed down year-over-year to 90,346 units, representing a decrease of 30.5%. Sales of medium heavy duty truck and light duty truck increased 46.7% year-over-year to 32,244 units.

Domestic Business

During the Period, the Group's market share in heavy duty trucks together with CNTHC Group increased by 0.94 percentage points as compared with the year ended 31 December 2011 according to CAAM. Such increase took place despite the falling domestic demand for heavy duty trucks and decreased sales volume of the Group's heavy duty truck. The Group's construction trucks and specialty vehicles enjoy significant competitive advantages while retaining their industry leading status. Compared with the sluggish heavy duty truck market, sales of natural gas truck increased as a result of the Group's reliable advanced natural gas engine technology.

During the Period, the Group continued to focus on optimizing product mix and made progress. The foundation of the Group's future development ¡V full series of commercial vehicles by focusing on heavy duty trucks assisted with medium and light duty trucks and buses has been formed. Leveraging matrix of the level of technology standards applied and products differential of each brand, the Group was able to further strengthen the development of new products and carry out promotional activities. This was further supported by the Group's coordinated technological upgrades on its current truck models to balance the development of different series. For example, Hohan series heavy duty truck is repositioned by emphasizing its light weight and price advantage to supplement with HOWO series heavy duty truck. The sales volume of medium heavy duty trucks has been increased. A heavy loading mining truck and natural gas vehicles were favored in the market with increased sales volume.

During the Period, the Group's light duty truck business continued to expand sustainably. A light duty truck division was established in order to centralize and manage production and sales of light duty trucks of Ji'nan light duty truck division and Sinotruk Fujian Haixi Vehicles Co., Ltd. (¡§Sinotruk Fujian Haixi¡¨). These efforts successfully aided in strengthening the research ability, the sales network, the improvement of after sales services and the increase in promotional activities among Ji'nan light duty truck division, Sinotruk Fujian Haixi and Sinotruk Chengdu Wangpai Commercial Vehicles Co., Ltd., (¡§Sinotruk Chengdu Wangpai¡¨) and resulting in successful launches of our new products. Following the introduction of the HOWO light duty trucks series at the end of 2011, the Ji'nan light duty truck division also launched the Huanghe light duty tippers series at the end of 2012. During the Period, Sinotruk Fujian Haixi launched Fuluo H3/H5 light duty trucks series. With improved technology and serviDuring the Period, the Group's bus business ran smoothly and successfully increased its sales volume. The Group increased development controls over the new product testing and improved its quality of sales services and further optimized sales networks, in addition to constantly improving the quality of its buses. Aside from actively seeking opportunities in traditional domestic markets, the Group has also begun to focus on expanding its overseas business. In January 2013, Sinotruk Ji'nan HOWO Bus Co., Ltd. delivered 100 buses to various Southeast Asian clients signaling the start of a new era in bus exports. Overseas markets are expected to become increasingly important to the Group's business as growth continues. The Group sold a total of 944 buses during the Period, representing an increase of 588 buses or 165.2% as compared with the year ended 31 December 2011.

During the Period, the Group continued to upgrade the sales networks for its various brands. Particular attention was placed on the optimization and integration of sales networks of Sinotruk Ji'nan Truck Co., Ltd. and Sinotruk Ji'ning Commercial Truck Co., Ltd. (¡§Sinotruk Ji'ning¡¨) As a result, a sizable sales network covering medium heavy duty trucks, light duty trucks and buses has been built. As at 31 December 2012, the Group's heavy duty truck division had a total of 1,094 heavy duty truck dealerships including 258 4S centers and 219 stores specializing in products of the Group's own brands, 2,037 service centers providing high quality after-sales services, and 177 refitting companies to help tailor our trucks for different customers. The Group's light duty truck division had a total of 730 dealerships including 9 4S centers and 166 Sinotruk branded dealerships, 1,430 service centers providing high quality after-sales services and 11 refitting companies providing refitting services for our light duty truck products. We also had a total of 50 dealerships and 71 service centers for our buses. Each brand sales network was further strengthened.

International Business

In 2012, the global economy continued to stagger through a weak recovery adding to the pressures China's export industry already faces. With weak growth expected from the global economy, the Group has proactively taken various measures to boost the export of its products with the aim of offsetting slumping domestic demand. The Group continued building its international brand equity by brand building and defending its trademarks as it expands overseas. Sinotruk's uniqueness can be created by improving and strengthening the quality of the Group's sales network and after-sales services in addition to establishing cooperative agreements with overseas partners. The Group has established overseas assembly plants (KD plants) to localize production. Other than to consolidate the markets we are traditionally strong, we also proactively expanded our presence in emerging markets such as South America. The Group also tailors developed products for developed markets based on our research and analysis of needs in those As at 31 December 2012, the Group has overseas sales centers in more than 40 countries and regions along with 86 primary distributors and 145 secondary distributors in more than 80 countries. The Group also helped its overseas distributors to build 343 service outlets and 319 accessories and components outlets in total. During the Period, the Group recorded export (including affiliated export) of 26,505 heavy duty trucks, with a 27.1% increase when compared to year 2011. This represents an industry leading export income of RMB7,202 million, with a 22.9% increase when compared to 2011.

Engines Segment

The engine business caters to the Group's own truck segment and to external third parties, including other manufacturers of heavy duty trucks, buses and construction machinery. To diversify its sources of revenue, the Group also focused on increasing revenue from external sales in its engine division and expanding its domestic market share.

During the Period and as compared with the year 2011, the sales volume of engines decreased by 32.2% to 92,017 units and revenue (including components used During production and external sales) decreased by 24.3% to RMB6,312 million. External sales accounted for 20.7% of the engines division's revenue, representing a minor decrease compared to 21.1% during the same period of 2011.

The localization of engine technology of MAN SE and its subsidiaries (¡§MAN Group¡¨) continued to progress smoothly and on schedule. Prototype engines for heavy and medium duty trucks were constructed, tested, examined and verified. Production lines have been tested, fine-tuned and ready for batch production.

The Group is devoting resources towards the development of green energy-saving products, and is working constantly to improve the technologies against its large power natural gas engines. The Group's T12 natural gas engine equipped in heavy duty truck shows excellent performance and earns reputation among users.

Technological Upgrade

Major investments and construction projects included, 1) the localization of the MAN Group's engine, TGA cabin and the spare parts production, 2) the construction of medium heavy duty truck and light duty truck production facilities, and 3) the enhancement of production techniques and quality control standards, which intended to balance the production capacities among trucks, engines and gearboxes as well as improved product quality standards and research and development capabilities for the Group's forged parts division.

The Group's Ji'nan light duty trucks project was completed and ready for batch production. Material investment projects and large construction plans including Sinotruk Wangpai medium and heavy duty truck project, Sinotruk Fujian Haixi medium and heavy duty truck project, and Sinotruk Ji'ning cabin production for commercial vehicle project, continue to progress on schedule. They provide a solid foundation for the enhancement of the Group's production lines and technology upgrade.

The Group currently maintains truck and spare parts research and development centers and their production facilities in Ji'nan, Hangzhou, Chengdu and Fujian, PRC. Through optimized product mixes and balanced production capacity, the Group is able to meet various different demands for all of its products.

New Products

The Group remains committed to its strategy of building the technological edge by strengthening its competitiveness through investment and upgrades on technology. The Group also enriches its product portfolio to cover full series of commercial vehicles including heavy duty trucks, medium heavy duty trucks, light duty trucks and buses by continuously investing on new products development.

SITRAK, a high end truck brand co-operated developed by the Group and MAN Group, will be brought to the market in 2013. SITRAK heavy duty trucks series are built upon the MAN Group's product designs and its design, production and launch followed the strict quality assurances measures set up by both parties. This series of trucks meets high end market requirements in terms of fuel efficiency, reliability, and safety and would raise the Group's market position. The introduction of this series will positively impact to the heavy duty truck industry both domestically and overseas by creating a new market position for the Chinese heavy duty truck manufacturers.

In order to warrant product reliability, each stage of development of HOWO-T7H and HOWO-T5G series heavy duty trucks including from conception, testing, verification and production of parts run through MAN Group's standardized product development procedure controls. The Group equips the MAN Group's engines, axles, and other key components and parts with the existing models so as to upgrade their levels of reliance, efficiency and technology. These series are designed for customers who want to upgrade their existing heavy duty trucks and medium heavy duty trucks upon replacement. They are expected to launch the market in year 2013.

After the successful introduction of HOWO light duty truck series, Sinotruk Ji'nan light duty truck division launched the Huanghe tippers series which satisfies the various customers' needs.

Finance Segment

During the Period, the external revenue of the Group's finance segment increased from by RMB113 million RMB95 million to RMB208 million as compared with the year ended December 2011. The increase was primarily due to the expansion of the consumer credit business, the growth in interest income from lending and the increase in income on interbank deposits.

During the Period, in order to satisfy demand for taking a loan for truck purchases, Sinotruk Finance Co., Ltd. (¡§Sinotruk Finance¡¨) continued to expand its consumer credit business, with various forms of consumer credit and finance leases, to encourage sales while taking a prudent approach towards credit risk management. As at 31 December 2012, Sinotruk Finance has established 19 regional offices and extended its consumer credit business coverage to over 20 provinces; covering most parts of China. In 2012, the Group sold 6,029 trucks through providing consumer credit, representing an increase of 84.9% compared to the year 2011.

The Group continued to work diligently on strengthening its financial management over the Period. The Group is determined to achieve sound risk management through enhanced process management and further strengthened its finance control system.

Business Outlook - For the year ended December 31, 2012

For the year of 2013, uncertainties are expected to cloud the recovery of the global economy. The PRC government has adjusted its economic policies adapting them to domestic and international economic circumstances to ensure continued stable growth of the PRC economy. Based on the most recent economic data, the PRC economy has signs of a gradual recovery. The Group anticipates that the PRC economy will gradually improve, particularly as the speed up of progress of urbanization, water conservation construction projects and other policies aimed at lifting living standards of the people and hence the heavy duty truck industry will have better development. The Group will adjust its operational strategy from time to time in order to ensure the sustainable development of the Group by:

1. To optimize product mix. The Group will promote the development of its full series commercial trucks platforms with heavy duty truck as the core product. Capitalizing on technological edges, the Group will continue to focus on driving the technology standards of all products to a higher level, well prepare the marketing activities of its new products and enhance brand awareness and product recognition. These actions will ensure an increased competitiveness of the Groups products.

2. To vigorously promote innovation in marketing strategies and to pay more attention to the quality of the sales network. The Group will also further optimize the sales network to boost integration of sales resources with the aim to realize complementary advantages among the sales divisions and to optimize the sales network.

3. To adhere to the Group's international development strategy. The Group will work towards the raising of its brand awareness and influence to further establish and improve its brand equity. This will aid the Group's expansion into overseas markets, develop overseas assembly projects (KD projects), and construct supply networks for key components and parts. In addition, the Group will improve the quality of overseas after-sales services to keep the Group's dominant position in export.

4. To continue to enhance efficiency and quality with the lean management method. The Group will work to improve and optimize the quality of its management systems to facilitate different series of products. The Group will implement advanced quality control concepts and quality management techniques, establish highly efficient product quality feedback mechanisms and enhance awareness of risk prevention. We believe these measures will help us further improve our profitability at lowering operation costs and maintain a healthy development momentum.

5. To continue to strengthen the cooperation with MAN Group. We believe a closer co-operation with MAN Group will assist the launch of the co-developed products to market and get a better result. We will expand the scope and areas of the cooperation in accordance with the market needs.

Source: Sinotruk (HK) (03808) Annual Results Announcement
Chairman Ma Chunji Issued Capital (shares) 2,761M
Par Value HKD 0.1 Market Capitalisation (HKD) 11,458M
 
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