Liansu Group, which calls itself China's largest plastics pipe maker, does not expect business to slow down in the second half of the year, even as the country's housing sector faces worries of a bubble and slowing of its breakneck growth after emerging from the financial crisis.
Liansu executives expect demand growth to continue due to urbanization and the increasing use of plastic pipe in place of other materials in China, they said in an Aug. 31 interview at the company's Hong Kong office.
Liansu is based in Foshan, China.
The firm is digesting a recent wave of new-factory construction, but is also scouting additional locations in western China and potential acquisitions, said Chairman Wong Luen Hei. It currently has 11 factories.
Liansu, which went public on the Hong Kong stock market in late June, released its first earnings statement Aug. 30, reporting first-half 2010 sales of 3.32 billion yuan (US$488 million) and net profit of 482.6 million yuan (US$70.9 million).
We believe the group is expected to maintain stable and steady performance in the second half of 2010, the company said in its filing.
Liansu did say its recently completed initial public offering in Hong Kong did not raise as much money as the firm anticipated, bringing in about HK$1.95 billion (US$250.8 million), compared with an anticipated HK$2.16 billion (US$280 million).
CEO Zuo Manlun attributed the result to general weakness in Hong Kong's stock market, but said the shortfall will not hurt business plans as the firm has enough profit and access to capital from banks to continue with its development.
About two-thirds of its sales still come from its traditional South China base, but executives said the firm wants to be China's first plastic pipe maker with a broad national footprint.
It plans to open factories in Xinjiang Uygher Autonomous Region and Jilin province in the northeast this year or early next year. Wong said the firm is looking for land in Sichuan and Shaanxi provinces and expects to start construction there next year.
The company saw its production volumes increase to 351,000 metric tons in the first half of 2010, a 75 percent increase over the 200,000 metric tons in the first half of 2009, although the earlier period was when the financial crisis hit China the hardest.
Liansu claims about 11 percent of China's pipe market of about 5.1 million metric tons in 2009.
Company executives said Chinese government attempts since 2009 to curb investment in real estate have not hurt Liansu's sales volumes or selling prices, because the government's policy has been to actually encourage more construction and boost the supply of homes as a way to control overheated housing prices.
There is a large population and people need homes, said Lin Shaoquan, vice president. We still think this is just to control the pricing, not to control the development of the market.
Company executives said they believe they will continue to beat market growth.
From 2010-15, the growth rate of the Chinese pipe industry will be 12.7 percent [annually], but we are confident we will grow faster than this, Lin said.
The company pointed to Chinese government policies favoring the use of plastic pipe and the growing use of plastics in place of other materials in some of its key markets such as drainage and water-supply pipes, which are each about 40 percent of its business.
The company also plans to use HK$325 million from the IPO for either domestic or foreign acquisitions, Wong said.
The company attracted attention in North America when it announced in 2007 that it would start exporting some smaller products to the continent, but it later backed away from that plan.
Wong suggested at one point, in response to a question about India, that that country was under consideration. But he also suggested that Liansu now is focused on China.
The Chinese market is booming up and now we have to put more of our energy in the domestic market, he said. Maybe now is not the time to put more energy in the international market.
Less than 1 percent of Liansu's 2009 sales were outside China.
The company's first-half 2010 sales were up 78 percent compared with the first half of 2009, and profit was up 189 percent in the same period, but it may be hard to draw conclusions given the financial crisis in China in early 2009 and the domestic market's sharp rise since then.