Despite its overseas listing on Nasdaq, automotive compounder China XD Plastics Co. Ltd. has been a fairly domestically focused manufacturer. Until now, that is.
The Harbin, China-based company is aiming to expand beyond China and establish manufacturing presence abroad. As a first step, XD is launching a compounding facility in Dubai, a strategic location that the company said will cover not only Asia but also Russia, Europe and the Middle East.
XD said it is in the process of registering the Dubai plant and ordering equipment. Production can start later this year or in early 2015.
The Dubai subsidiary, AL Composites Materials FZE, will be housed in an existing facility, XD paid about $600,000 for the plant and is spending $80 million to retrofit the infrastructure and add equipment.
Capacity of the Dubai plant will start small, between 5,000 and 10,000 metric tons per year, with an eye toward possible expansion down the road, said Taylor Zhang, chief financial officer. He added that the Dubai operation is expected to achieve high profit margins, in the range of 30-50 percent this year and next year.
Chairman and CEO Jie Han explained the decision to investors in a recent earnings call. “There are sufficient and ample availability of raw materials in the region,” he said, “And secondly, we do have a lot of international suppliers that have subsidiary operations in the region.”
Tax benefits are also part of the equation, Han noted, “There is zero taxation.”
Chief Operating Officer Qingwei Ma added that Dubai offers very convenient logistics, flexible currency, state-of-art custom facilities as well as access to global talent.
North America is another piece of XD's global strategy, Han said. “We do have the intention to expand into North America, ideally in the United States, sometime in the future,” he said.
XD emphasized its positioning in the global market with what it called “high-end standardized products,” vs. the highly customized materials it supplies to Chinese molders. The company is targeting established and larger global customers, in contrast to the small and fragmented customer base it in China.
The standardized approach has generated success in XD's direct sales in South Korea, where the company supplies mainly two product categories — nylon 66 and long chain nylon 12. XD claims the products are priced 10-30 percent lower than comparable international competition.
To illustrate its shift to high-end products, XD said it has ramped up R&D efforts to develop new products. The company expects to see some commercial success with polylactic acid in the third quarter and it's also making progress with the testing of PEEK.
XD said it has evaluated other international locations such as Germany, and is still evaluating locations such as Singapore and India.
While overseas sales only represents 10 percent of XD's total sales, Han said overseas market will represent 20 to 30 percent of annual growth in the near future.
XD projects its 2014 full year sales to be in the range of $950 million and $1.05 billion, with net profit between $100 million to $120 million.
Domestically, construction of XD's Sichuan plant is due to begin this month and production is scheduled to start at the beginning of 2016.