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CHINA GAOXIAN FIBRE's lively Q&A session with fund managers
Written by Leong Chan Teik
Wednesday, 10 March 2010
Raymond Wong, CFO, China Gaoxian Fibre. NextInsight file photo.
CHINA GAOXIAN FIBRE, which sports a historical PE of just 2.6, has enjoyed a recovery in revenue every quarter since Q2 last year, and achieved record gross profit margin last year.
It supplies highly differentiated polyester yarn to China, a 'huge market for growth for local suppliers' as China still relies on imports for 50% of its overall demand for the products that are used to make fabrics. (Polyester fibre is a chemical fibre synthesised from petrochemicals. Polyester is by far the most widely used synthetic fibre in the manufacture of clothing, artificial leather and other industrial products.)
These were among the facts that the company’s CFO, Raymond Wong, presented to analysts and fund managers yesterday (Mar 9).
The company is the largest polyester fibre producer listed on Singapore Exchange in terms of polyester yarn production capacity (180,000 tonnes per annum in 2009).
Following Mr Wong’s presentation, a Q&A session was held. Some highlights, which are edited for brevity:
Q How dependent is the company on the US market?
Mr Wong: US is not a export market for us. We sell 100% of our products in China and, from customer feedback and from our own assessment, our products are consumed in China.
Q Can you talk about dividend payouts?
Mr Wong: We didn’t announce a final dividend for 2009. We were listed in Sept 09 and shortly after, declared a 0.66 cent dividend which was paid out in November. We consider that as our dividend for FY09. This year we will consider whether to pay a dividend or not when we announce the final results for 2010.
Increasing contribution from high-end products enabled the Group's gross margin to stay above 30%.
Q How does your company compare with FibreChem which is a polyester fibre manufacturer producing differentiated yarns too and similarly targeting the mid to high end range?
Mr Wong: It’s not so nice for me to make a comparison. The textile industry is very fragmented in China. We are producing different types of differentiated yarns. Our customers use our yarns and natural yarns and blend them.
About 60% of our products go into making sportswear and casual wear. In particular, our triangular yarn, which was launched only two, three years ago, has become popular as a substitute for natural silk. It’s difficult to manufacture – right now only a handful of manufacturers in China has the technology.
Q The technology is based on imported machinery?
Mr Wong: We can buy imported machinery but that would increase our cost. We are not using 100% imported machinery, but a combination of imported and domestic machines. Actually, the manufacturing process is not so much about the hardware but about worker experience and skills to adjust to changes in environmental factors such as temperature. It’s also about trial and error. We send our technical people to our customers to ensure that our yarn achieves the desired effect – there is some trial and error involved.
Q What’s there to stop your competitors from buying the same machines and hiring people who have the experience and skills?
Mr Wong: We can’t stop competition. We decided to go for a listing in Singapore last year despite the market conditions then. It provided us access to capital market. We are already a very large producer of polyester fibre. We have competitive advantages over any late comer. We have an established brand name and 1,500 customers. We continue to develop new products. You are right that no industrial product can give a high margin forever.
Gaoxian sold a record tonnage of its products in Q4 last year.
Q How much does your largest customer contribute to your revenue?
Mr Wong: Less than 5%.
Q Your competitors have done well. I am trying to understand where your drop in sales came from.
Mr Wong: In terms of volume, we actually increased it by 10% last year. We had a record volume in Q4. In revenue terms, yes, we did dip slightly for FY09, partly because in Q1 we were still suffering from the global financial crisis and it was also the Chinese New Year factor.
Q How many shares does the management hold?
Chairman Cao Xiangbin
Mr Wong: Our major shareholder (the chairman) owns about 60%. Two others hold altogether 13%. So the free float is about 30%. The management, besides our chairman, is not holding any shares significantly.
One reason is China has exchange controls – for China citizens to buy shares overseas, they have to get hard currency first and our shares are denominated in Singapore dollars. I should add that all of us are confident of the growth of our company.
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