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Tight credit in China hits Liansu, but firm eyes outside ventures

By: Steve Toloken

March 20, 2013

SHUNDE, CHINA -- Earnings at China Liansu Group Holdings Ltd., the country's largest plastic pipe maker, have taken a hit from tighter credit in China and global economic troubles, but the company said it still expects growth from generally solid underlying demand for pipe and increasingly from new business ventures.

Revenue rose 7.4 percent in 2012 to 10.89 billion Chinese yuan (US $1.75 billion) — a big drop from the blistering 31 percent sales growth it saw in 2011 — and profits fell 1.8 percent to 1.23 billion yuan (US $197.8 million), Liansu said in a March 18 report to the Hong Kong Stock Exchange.

What emerged from the report for the first time was a much clearer picture of the company's plans outside of piping, suggesting Liansu would like to become a large manufacturer of building-related products in addition to its perch atop China's plastic pipe market.

Executives unveiled plans to rebrand the company's products and change its English name to help with an international push, and they said they hope that R&D and new ventures manufacturing windows, doors, profiles and bathroom products will bring new sources of profits.

In the short-term, it said piping markets grew more difficult.

"The Eurozone debt crisis continued to be a drag on the global economic recovery, while the Chinese government set a cautious target for steady economic growth," said Chairman Wong Luen Hei, in a statement. "Credit tightening policies were also implemented, which affected the investments in fixed assets, putting pressure on the plastic pipe industry."

However, the group highlighted a number of Chinese government projects in affordable housing, infrastructure and water conservation that it said would continue to feed underlying demand, and it said it spent 1.42 billion yuan ($228 million) in 2012 as part of a large expansion it announced in September to add several new pipe and fitting factories in China.

It said China's continued urbanization, from 44 percent of its population living in cities in 2006 to 53 percent this year, meant that the plastic pipe industry would continue to grow.

Also, the Shunde-based company said it was investing more in new businesses.

For example, it spent 75 million yuan ($12.0 million) in equipment for its new home building products business like plastic-steel composite doors and windows, and it said it is being supplied with kitchen appliances from a "well-known" American home appliance company to provide products and services as part of its push into what it calls the "holistic kitchen" market.

Wong also said the company would continue its internationalization in unspecified ways — it opened a small factory in Canada last year, its first outside China — and it said it was moving toward a "more focused" branding strategy.

As part of that, the company said it was changing its English name to China Lesso Group Holdings Ltd. and adopting a marketing slogan of "Create a relaxing life for residents."

It said Lesso stands for "Link, Easy, Safe, Share, and Open," and said the new branding effort is a key part of its internationalization and its push into home building products. Its Chinese name will remain unchanged.

"The Group is now gradually launching products that incorporate those brand essences, and these are expected to become its primary revenue drivers," Wong said.

In its traditional pipe business, the company said it expected its designed capacity to grow in 2013 to between 4.1 billion and 4.2 billion pounds, up from 3.9 billion pounds. It said its 2012 production volumes were nearly 2.4 billion pounds, up 13 percent from 2011.

As indications of long-term demand, the company pointed to various Chinese government programs that are budgeted to spend at least 7.4 trillion yuan ($1.19 trillion) in environmental projects in the next decade, including those that will directly impact the company, such as rural water systems, central gas supply systems and water saving and irrigation projects, particularly in Northeast China.

It also said the government built 21 million affordable housing units in 2012, increasing its spending on such projects by 14 percent.