At yesterday's briefing in HK: Reinforced materials firm Sijia Group's Head of Finance Wu Yonggui (left), CEO Zhang Hongwang (center) and CFO Alvin Chan.
Photo: Frances Leung, Aries Consulting

SIJIA GROUP Company Ltd (HK: 1863) said its first half revenue charged ahead 21.9% to nearly 586 mln yuan, producing a 19.1% bottom line jump to 175 mln on stronger demand, rising production capacity and higher ASPs.

Management said in a Hong Kong press briefing on Tuesday that enhanced R&D efforts and the PRC’s growing commitment to alternative energy technology will drive revenue going forward.

“Ongoing efforts on R&D are crucial to maintain long-term competitiveness, customer loyalty and new market exposure," said Sijia Chairman Lin Shengxiong.
Photo: Sijia

More value-added products also helped Mainland China’s largest manufacturer of reinforced materials improve its gross profit margin by 0.7 percentage points to 47.6%.

“All production segments experienced satisfactory and balanced growth. Of these, reinforced materials accounted for 60% of total revenue, with sales up 21.4% to 353.9 mln yuan, primarily because of the increase in production capacity after installing a new lamination production line in the second half of 2010,” said Sijia Chairman Lin Shengxiong.

He added that a strong emphasis on research and development was key to the firm’s success.

“We believe ongoing efforts on R&D are crucial to maintain long-term competitiveness, customer loyalty and new market exposure.”

Mr. Lin explained that in the January-June period, Sijia’s R&D expenses were 31.3 mln yuan, representing 5.3% of total revenue.

“In the future, we’ll maintain the ratio at about 6% of total revenue. In the first half, construction of Phase II of our Fuzhou factory is nearly complete and we expect to commence production by the end of this year.”

That is key, as the primary ex-factory product at the firm’s main Fuzhou plant is reinforced materials, the company’s core commodity. And with 10 production lines in the provincial capital of Fujian, Sijia is likely to hold firm to its leading market position in Mainland China for the products, currently with a 4.5% share nationwide (with Shanghai Shenda-Kobond and Plato Chemical both tied at 3.5%).

Alvin Chan, Sijia’s CFO, told the media gathering yesterday that first half profit attributable to shareholders rose by 19.1% to 174.9 mln yuan, while the gross profit surged 23.7% to 278.4 mln.

“The results were within our expectations and we are generally satisfied with the six-month performance,” Mr. Chan said.

Sijia's biogas tanks and inflatable watercraft are big sellers. Photos: Sijia

First half sales of end products increased by 19.7% year-on-year to 163.2 mln yuan, mainly due to stronger demand for wader and protective clothing, biogas tanks and inflatable boats.

When asked if specific events such as the two week Universiade currently underway across the de facto border in Shenzhen provided a boost to Sijia’s orderbook, Mr. Chan said that he didn’t doubt it, but the nature of its end products made it hard to attribute revenue growth to various activities like Olympics or the University Games.

“It is quite likely that some of our end-products such as inflatable products, architectural membranes or waterproofing materials are utilized in some way at events like these. They are used in such a wide range of applications,” he said.

Mr. Chan added that as of the end of June 2011, the company’s financial position remained “healthy.”

Current assets increased by 14.6% to 682.7 mln yuan compared to the end of 2010.

This allowed our current ratio to drop to 3.0 now from 5.4 at the end of last year, while the company’s gearing ratio rose to 2.3% from 1.1%.

“Meanwhile, basic earnings per share stood at 21.11 RMB cents, representing a decrease of 3.0% compared to the same period last year, mainly because the weighted average number of common shares outstanding increased significantly,” he said.

Bargain Alert? Sijia's six-month slide has made the stock attractive to potential buyers

Zhang Hongwang, Sijia’s Executive Director and CEO, said that the company was not resting on its laurels by over-relying on yesteryear’s product mix.

He also echoed Chairman Lin’s dedication to constantly working to improve product quality and diversification.

“As the PRC’s top reinforced materials manufacturer, Sijia is dedicated to constantly improving R&D capability with the aim of lowering the cost of raw materials, streamlining manufacturing processes and developing high value-added new materials,” Mr. Zhang said.

Sijia CEO Zhang Hongwang (left) touts his company's wares to visitors at Techtextil in Germany. Photo: Sijia

He added that as testimony to this commitment, the first half of this year saw Sijia granted another three patents, bringing the total held by the group to 57.

“Of these, red mud composite membranes and its production processes are very important to the company since red mud biogas materials are one of our future focuses.”

In addition, the first half saw Sijia launch other promising product lines, including architectural membranes (26.6 mln yuan in revenue), waterproofing membranes (14.8 mln yuan) and TPU membranes (10.0 mln yuan).

Sijia also realized that despite the rapid economic rise of its home market of Mainland China, the company ignored opportunities elsewhere at its own peril.

To that end, it aggressively seeks out opportunities to participate in professional and technical trade fairs.

In the first six months, Sijia took part in six such events, including the prestigious 2011 Technical Textiles and Nonwovens (Techtextil) Fair in Frankfurt, Germany and the 109th Spring Canton Fair, as well as the 16th China (Shanghai) International Boat Show (CIBS).

Sijia now: 2.66 hkd

Management explained that not only contacts could be made, but executable orders were also inked, with Sijia securing around 30 mln yuan in contracts from just one of these fairs alone so far this year.

Chairman Lin said that the reinforced materials industry – which currently contributes some 60% of the company’s total sales revenue – is still in its “early growth stage.”

“With support to come from the PRC’s 12th Five-year Plan, it is expected to witness fast growth in the future. There is huge room for development.”

Mr. Lin added: “We are confident we can provide even better returns for our shareholders in the second half of this year.”

See also:

SIJIA: HK Listco Nabs 30 Mln Yuan Orders At Frankfurt’s Techtextil


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