Despite double-digit sales growth, Kingfa Science & Technology Co. Ltd. saw its annual profit decline by more than 30 percent in 2014.
The Guangzhou-based company, by far the leader of China's plastics compounding industry, reported 16.1 billion yuan ($2.6 billion) in fiscal year 2014 sales, up 11.6 percent from 2013. However, net profit dipped 34 percent to 498.4 million yuan ($80.4 million).
That number included non-recurring gains and losses. Not including the non-recurring gains and losses, net profit sank 32.7 percent to 409.7 million yuan.
Sales volume, in pounds, rose 20.8 percent to nearly 1 million metric tons — that number does not include Kingfa's sizable distribution business.
Growth in volume
Kingfa's automotive business grew faster than the overall market. The Chinese automotive sector grew 6.9 percent in 2014; Kingfa managed to grow its automotive compound sales volume by more than 25 percent for the third consecutive year, reaching 312,000 tons.
The company said it focused on low-scent, low-emission, low VOC and lightweighting applications.
Kingfa also supplies materials to alternative-fuel carmakers including BYD and Tesla.
The company reported some other bright spots, in terms of sales volume, outside of its core business of automotive and appliance compound.
Its relatively new recycling unit more than doubled annual volume to 55,000 tons, up 135 percent compared to 2013. The subsidiary, based in Qingyuan, Guangdong province, said it has established a global supply chain system, opened more sorting and collection stations, and partnered with overseas companies.
Sales volume for specialty engineering materials grew by 138.6 percent, including its high-temperature, flame-retardant nylon compound for applications like LED reflector brackets and connectors.
The company's 2014 annual report, released April 21, also marks the first time that Kingfa announced its bioplastics division sales volume. The company reported “significant growth” of its biodegradable plastics business, with annual volume of nearly 5,000 tons. The company claims to be the second largest supplier of biodegradable plastics in Europe.
Another milestone in 2014 was the launch of 12,000 ton of annual capacity of continuous carbon-fiber-reinforced thermoplastics composites. The company said the business achieved sales in late 2014 and called it “an important step.”
In the global market, Kingfa's majority-owned Indian subsidiary also increased its sales volume by 20.2 percent to 18,800 tons, winning new orders that supply to Ford, Suzuki, Isuzu, Fiat Chrysler and more.
Slowing capacity growth
When it comes to capacity, Kingfa has been hitting the brakes on its once aggressive expansion projects. While continuing to slowly invest in most ongoing projects, the company also restructured and streamlined other businesses. It decided to call off a 200,000-ton automotive compound project — which was already more than 30 percent in project progress — at its headquarters of Guangzhou and instead build new capacity in the emerging automotive town of Wuhan in central China.
In the meantime, Kingfa managed to grow its annual output by 68 percent at its Tianjin base and 78 percent at its Jiangsu province.
But when it comes to profitability, 2014 continues a downward trend for Kingfa. Overall gross margins came in at 14.11 percent, 0.73 percentage points lower than 2013, or 3.46 percentage points lower than 2012.
Kingfa has been patiently investing in new businesses and regions, believing that these projects will become new profit engines in the mid-term. But for the time being, they remain unprofitable. Its India subsidiary reported a loss of 7.1 million yuan. Its Zhuhai PBSA subsidiary posted an 11.7 million net loss in 2014. The carbon fiber unit lost 5.5 million yuan. Its wood/plastic building materials firms altogether were 15 million yuan in the red. The recycling subsidiary lost 28.4 million yuan.
Looking into the future, Kingfa expects to base its growth mostly mid-to-high-end products as well as new markets, which will make the company a direct competitor to global compounders in more fields.
The company last year set up a wholly owned subsidiary in Ann Arbor, Michigan, as well as sales offices in Japan, South Korea, Malaysia, Thailand and Vietnam.
Overseas market only represents 8 percent of Kingfa's overall sales. Export growth increased by 3.6 percent in 2014, compared to the 12.3 percent growth in its home market. Kingfa had a spacious booth at NPE 2012 but was absent from the 2015 show last month.
Also on April 21, Kingfa released its first quarter results, highlighting a 5.4 percent modest sales growth and a 78.9 percent hike of net profit, excluding non-recurring items.
