QINGDAO, CHINA -- A subsidiary of giant Chinese appliance maker Haier Group plans to take a 25 percent ownership stake in plastic toy maker and injection molder Lung Cheong International Holdings Ltd.
The deal is part of Lung Cheong's strategy to diversify its markets and strengthen its position in a challenging global toy industry.
Hong Kong-based Lung Cheong said the HK$278 million (US$35.9 million) investment by Haier would give the company additional resources and let it tap into Haier's experience building a global brand in the appliance industry, as the toy maker tries to expand business for its own branded toys.
The investment is coming from Haier Electrical Appliances Second (BVI) Holdings Ltd., a wholly owned subsidiary of Haier Investment, one of the investment companies within Qingdao, Shandong-based Haier, Lung Cheong told the Hong Kong Stock Market in a recent filing.
"The directors are of the opinion that by inviting Haier Electrical Appliances Second as strategic investor, the group can draw on the successful experience of Haier Group of companies in particular, in building up a well-known worldwide brand name and efficient manufacturing management and worldwide distribution channel," Lung Cheong said.
The toy maker declined further comment while the investment is pending completion, but said it believes Haier can help it "improve its business strategy towards the competitive toy manufacturing industry in recent years due to the uncertainties and soft demand from North American and European markets."
Haier has built itself into a global brand whose products are sold in over 100 countries, Lung Cheong said.
The firm also said the Haier investment was part of a plan to explore other markets outside the toy business, although in its stock filing it did not provide details.
"The directors are concerned that the global toy industry will continue to face challenges in the future… [and] have been actively exploring all possibilities of selective mergers, acquisitions and divestments to reduce the group's reliance on its toy business so as to seek alternate sources of revenue from new ventures," it said.
The Haier unit is buying 1.39 billion shares of Lung Cheong, which would officially give it a 25.47 percent ownership stake. Haier's purchase is part of a placement of 2 billion new shares the company is issuing from which it hopes to raise almost HK$400 million (US$51.5 million).
The Haier investment would be the latest of a series of significant moves for Lung Cheong. The company sold itsChinafactories in 2011 to Brisk Mark Holdings, a company owned by the son and brother of Lung Cheong's executive director Leung Lun.
Brisk Mark is 70 percent owned by Leung Kenneth Yuk Wai, Leung Lun's son, and 30 percent by Leung Chung Ming, Leung Lun's brother and a former executive director of Lung Cheong until April 2011, when he resigned as part of the sale to Brisk Mark.
Lung Cheong then set up a new 2,800 employee factory inIndonesia, where it said labor costs were lower than inChina.
In the six months ending in September, the company said its sales dropped 54 percent, to HK$146 million (US$18.8 million), owing to a difficult business environment and some of the company's global toy brand customers declining to move their production to the Indonesia factory.