An overly competitive market and gloomy demand has Guangdong Silver Age Sci. & Tech Co. Ltd. looking beyond its core compounding business and aggressively venturing into potentially rewarding new fields.
The Dongguan, China-based firm saw its compounding sales grow more than 14 percent in fiscal 2014, reaching 103,900 metric tons in volume and 1.1 billion yuan ($157.6 million) in sales.
The growth was supported by the addition of new capacity, as 16,000 tons of engineering resin compounding capacity in Dongguan as well as its new production base in Suzhou of east China came on stream.
But the company realizes there are limitations in the compounding market. China's macroeconomic growth continues to slow down, demand from downstream customers softens, and competition among compounders is increasingly fierce, the company said in its annual report, which was released today.
The gross margin for its compounding business stands at 13.6 percent, lower than its bigger domestic competitors.
In response to the market condition, Silver Age has been diversifying into new fields, aiming to strengthen its competitiveness and sustainable growth in the longer term.
It formed a subsidiary in April to focus on 3-D printing supply. Equipped with selective laser sintering, stereolithography, fused deposition modeling technologies, the company offers ABS filament, PLA filament, nylon powder and water soluble PVA.
The company's investment in the 3-D printing project as well as in new compounding capacity made a dent on its 2014 operating profit, which plunged 41 percent.
However, the company managed to obtain substantial government grants for its 3-D project, totaling 37.5 million yuan in 2014. That, in fact, bumped up net profit to nearly double from the previous year.
Silver Age said some of 3-D printing products have been commercialized, but it will give the project three to five years to become profitable.
In the meantime, the company is also venturing into other new fields that are more rewarding in the near term.
It increased its stakes in the business of computer numerically controlled machining of metal components for mobile devices by boosting its ownership of Sinco Electronics (Dongguan) Co. Ltd., becoming its largest shareholder.
Silver Age said it expects to receive significant returns from the Sinco investment in the first quarter, forecasting a jump of net profit in the range of 65 percent to 95 percent.