Friday, March 5, 2021
Martin Hennecke
HKEx Stock Code : 03868 
Corporate Profile
Principally engaged in manufacturing and trading of decorative base paper products and printing paper product.

Business Review - For the year ended December 31, 2012

In 2012, the global economy was perplexed by the sovereign debt crisis in Europe and the financial cliff in the United States. In comparison to the global economy, the Chinese economy maintained sound growth momentum despite its slowing economic growth. According to the National Bureau of Statistics of China, the country's gross domestic product (GDP) for 2012 amounted to RMB51.9 trillion, representing a growth of 7.8%, which decelerated from 2011.

Although the real estate market showed signs of recovery during the year, the sales of floor space of commodity housing only recorded a slight increase of 1.8% to 1,113.04 million square metres largely due to central government's property curbs. This represented a decline of 2.6 percentage points in sales growth from 2011, exerting pressure on the demand for decorative items and in turn relatively significant effect on the business of the Group.

For the year ended 31 December 2012, the Group recorded a turnover of RMB1,880,407,000, representing a decrease of 6.2% from the turnover of RMB2,003,651,000 for the same period in 2011. Gross profits dropped from approximately RMB326,910,000 in 2011 by 36.7% to approximately RMB206,979,000 in 2012. In 2012, profits declined by 66.1% to RMB75,253,000. Basic earnings per share was RMB5 cents (2011: RMB14 cents). The Board recommends distribution of final dividends of HK1.229 cents per share (2011: HK3.38 cents).

Decrease in profits of the Group during the year was mainly attributable to (1) decrease in overall sales volume, leading to an increase in the fixed cost shared by each tonne of products and therefore a decrease in the gross profit margin; (2) loss from disposal of the legacy Production line no. 2 upon completion of reconstruction and commencement of commercial production of Production line no. 2 in March 2012; (3) increment in administrative expense resulting from the Company's measures to investigate audit issues raised by its former auditors and (4) increase in income tax expenses as compared to the same period last year as the tax concession entitled by the Group as a foreign investment enterprise expired at the end of 2011.

Sales performance

During the year under review, the Group's products recorded decrease in the overall sales volume, which mainly reflected customers' more prudent approach to placing orders under the influence of the macroeconomy, as well as the direct impact of intensifying competition in the PRC's decorative base paper market on the sales revenue of the Group. Despite their completion of reconstruction in the fourth quarter of 2011 and their additional contribution to the production capacity, Production lines nos. 1 and 2 would be unable to help invigorate sales growth in the short term.

During the year, the overall sales volume of the Group dropped from 164,202 tonnes for the same period last year by approximately 3.5% to 158,405 tonnes of 2012. Of this, the sales volume of our major product decorative base paper was down by 8.4% from 142,480 tonnes of 2011 to 130,529 tonnes of 2012, whereas the average sales price maintained at a steady level. In 2012, the sales revenue of decorative base paper shrunk by 8.3%, accounting for 90.7% of the total turnover.

Expansion of production capacity

After completion of reconstruction in the fourth quarter of 2011, the Group's Production lines nos. 1 and 2 commenced commercial production in March 2012. The additional production capacity mainly concentrates on high-end decorative base paper products. On the other hand, reconstruction of Production line no. 3 on the relocation site selected by the Group in May 2012 continued to proceed, and was expected to complete in the fourth quarter of 2013. The reconstruction of Production line no. 3 was aimed at enhancing the production techniques and preparing ahead for long-term development. The existing Production line no. 3 would maintain operation during the reconstruction period.

Sophisticated distribution channels

Currently, the Group has set foot in six retail sales regions in the PRC, namely Shandong, Sichuan, Guangdong, Beijing, Jiangsu and Zhejiang. The Company boasts a sophisticated distribution network and its clientele comes from 13 provinces, autonomous regions and municipalities in the PRC.

Versatile product portfolio

The Group strives to develop widely applicable and quality decorative base paper products. At present, the Group produces and retails over 80 types of products catering to different markets. Products of the Group are suitable for a broad range of applications, ranging from furniture and office and home products to interior decorations of large facilities such as stadiums, community halls, exhibition centres, as well as vehicles and aircrafts. The Group will continue to enhance sales of high-end decorative paper base products to increase its profits.

Environmental protection

The Group places high emphasis on environmental protection. High-end wood pulp used to produce decorative base paper products causes almost zero environmental pollution during the production process. At present, we have two waste water treatment systems with a total annual processing capacity of approximately 5,350,000 cubic metres. Waste water after treatment is reused for irrigation at the Group's production base in Shandong.

Business Outlook - For the year ended December 31, 2012

Looking ahead, the property sector cooling measures imposed by the Central Government of China will likely remain unchanged despite the uncertainty in the global and China's economies in the near future. However, the ˇ§12th Five-year Planˇ¨ states that more public and government subsidised housing will be built, which will continue to be one of the major policies during the five-year period. Such policy environment is expected to continue to lend support to the decorative base paper market. Moreover, sustained stable growth of China's economy in the long run, continued active and steady progress of urbanisation, as well as continually rising national income, will continue to fuel the demand for commercial houses and in turn decorative base paper products. Building on the Group's high-end technologies in producing decorative base paper products and its solid foundation, the Board is cautiously optimistic towards the business growth of the Group in 2013.

In face of a more challenging market environment, the Group will continue to enhance its product quality through improvements of production facilities, and to increase its market share through enhancements of goodwill. Furthermore, paralleled to the consolidation of market leadership and customer base in existing sales regions, the Group will also strive to tap into new markets. On top of these, the Group will continue to fine tune its product portfolio and increase the sales weight and market share of high-end products with higher gross profit margins. Lastly, the Group will consistently implement stringent cost control measures, including controlling procurement costs, in order to increase the gross profit margin of products and in turn deliver better returns for our shareholders.

Source: Qunxing Paper (03868) Annual Results Announcement
Chairman ZHU Yu Guo Issued Capital (shares) 1,586M
Par Value HKD 0.1 Market Capitalisation (HKD) 3,274M
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