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Pipe maker Lesso benefits from urbanization in China

By: Steve Toloken

March 18, 2014

China’s largest plastic pipe maker, Lesso Group Holdings Ltd., said the quickening pace of urbanization in the country kept demand for its building materials solid and pushed sales up 20 percent last year, to 13.07 billion Chinese yuan ($2.15 billion).

Lesso, based in Foshan, Guangdong province, said in a March 17 announcement that net profit was up 17 percent to 1.43 billion yuan ($236.2 million). Those results contrast somewhat with government data this month that pointed to decelerating growth in China’s country’s broader industrial sector, but Lesso said it was benefiting from the government’s focus on infrastructure spending.

Its earnings announcement came one day after China’s State Council, the country’s top administrative body, unveiled a new target for urbanization, calling for 60 percent of the country’s 1.3 billion people to live in cities by 2020, up from 54 percent now.

That would add about 80 million people to the country’s urban areas, equal to the population of Germany, between now and 2020.

“The Chinese government’s accelerating urbanization, increased investment in infrastructure, irrigation engineering works and construction of social security housing provided a fresh impetus to China Lesso’s business,” the company said in a March 17 report to the Hong Kong Stock Exchange.

It acknowledged challenges in China’s economy and uncertainty in Europe, the United States and emerging economies, but Chairman Wong Luen Hei said he expected the company’s markets to “continue their momentum” in 2014.

“China’s gross national product growth decelerated slightly in 2013, casting uncertainty and risks over the macro-economy,” the company said. “Nevertheless, the group believes that urbanization, agricultural reform and the increase in properties completed in China will continue at a steady pace.”

Lesso said it planned to open two new factories this year, in Hainan and Yunnan provinces, and would start construction on a previously announced pipe factory in Shandong province. It’s been trying to add production outside its base in southern China, which provides about 60 percent of its sales.

More than 90 percent of Lesso’s sales came from plastic pipe and fittings, but the company said sales from a new business units selling home decoration products such as doors and windows and services like integrated kitchen designs nearly doubled its sales, to about 800 million yuan ($132.1 million), compared to 2012.

Lesso has been trying to diversify outside its traditional pipe market into other building industry segments to take advantage of what it said is a trend in China toward more houses and apartments being sold “pre-decorated.”

Still, it said it sold 1.003 billion metric tons of PVC pipe and fittings in 2013, compared with 845.7 million tonnes the previous year. Likewise, it said non-PVC pipes and fittings sales volume rose from 230 million tonnes in 2012 to just over 269 million tons last year.