Financial PR recently organized a plant visit to newly-listed China Gaoxian’s production facility in Changle city, Fujian province, for about 10 analysts, funds and private investors. Below are key highlights of the visit:
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Machines for spinning and drawing of yarns, which defines the textile properties of the spun fibres, such as tensile strength, resilience and softness. Photo by Roger Ng

Background: China Gaoxian is a leading supplier of premium differentiated fine polyester yarn and warp knit fabric. It operates two production plants - in Zhejiang Province and Fujian Province. It was listed on the Mainboard of the Singapore Exchange in September this year.
 

The company recorded net profit of RMB290.4 million on revenue of RMB1.3 billion for the first nine months of this year, comparable to net profit of RMB288.2 million and revenue of RMB1.3 billion last year.

This is despite a general slowdown in the PRC textile industry in the first half of 2009, which severely affected the entire value chain.
 
  
RMB ‘million

3Q09

% change (y-o-y)2Q09% change
q-o-q

Revenue

473.6(5.6)422.412.1
Gross margin 31.71.8bp31.00.7 bp
Net profit105.4-91.215.6
EPS (RMB cents)*9.01(4.3)8.1413.9

*Based on weighted average of 1,168,695,652 shares (3Q09) and 1,120,000,000 shares (2Q09,3Q08)

  

Expansion of Fujian Huawei facility

This is the Group’s flagship manufacturing facility, which was first established in 1997. From a modest facility with gross floor area of just over 1,400 sqm, the Group has gradually expanded its operations over the last decade by acquiring the surrounding land and establishing new production buildings.

The Changle operation has multiple production buildings with a combined gross floor area of approximately 103,700 sqm, housing about 348 production stations.

It is capable of producing about 108,000 tpa of premium differentiated fine polyester yarn and 15,000 tpa of warp knit fabric (WKF) annually. Together with its Zhejiang facility, the Group can produce about 198,500 tpa of polyester yarns annually.

The Group plans to further expand its annual yarn production capacity by another 25.2% next year, while its fabric capacity will triple to 81,900 tpa.

We could see the need for expansion as we walked around the plant. The plant was a flurry of activity with all production lines running and numerous rolls of yarns and fabrics stacked for delivery.
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Winding yarns onto paper reels: The yarn will be cut when the polyester yarn has reached its desired length. Photo by Roger Ng

Demand for the company’s products is so strong that the Changle facility is now running at close to 90% average utilization rate, based on 24 hours/7 days.

What was interesting was that for an operation of this magnitude, it only employs over 500 workers as most of the processes are fully automated. Most of the machineries are purchased from Japan and refitted to meet the company’s production specifications. 

So much for the perception that yarn production today is still a low-tech and labor intensive process.  

Customers and suppliers say market is recovering  

We met with some of the company’s suppliers and customers, who acknowledged that China Gaoxian is one of the largest differentiated polyester yarn producers in the PRC.

The customers cited scale, professionalism, long working relationships, consistency in product quality, and timeliness in product delivery, as the main reasons for selecting China Gaoxian as their supplier.

One of the garment manufacturers also acknowledged that selling prices for fabrics made with China Gaoxian’s yarns can on average fetch about 10% higher than other fabrics due to its superior quality. 
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Cao Xiangbin, chairman of China Gaoxian. Photo by Sim Kih

We also met Mr Charles Chen, a senior analyst with the China Chemical Fiber Economic Information Network (CCFEI), who noted that the PRC chemical fibre industry is on the road to recovery with strong domestic demand.

This is backed by one of the customers who said that prices of most chemical fibre products on the market have risen, on average, about 20-30% compared to the same period last year.

Chairman Cao Xiangbin a health fanatic

Visitors were impressed to learn that the founder and Chairman of the company, Cao Xiangbin, works long hours and 6 days a week at the factory. The man is also a fitness fanatic, who runs several kilometers near the factory almost daily before work. He also encourages all his staff to maintain a healthy lifestyle and he has installed a gym in the office.

On top of this, he asked the contractor of his 7-storey office building not to install lifts so that employees can climb stairs to keep fit. Unfortunately for us, we had to use the same route to get to the meeting room on the top floor. You can bet no one is in a hurry to bring this concept back to Singapore!  
    

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