China's second largest injection molding machinery maker is having a down year, and the primary cause may well be beyond its control.
For the six months ended Sept. 30, Hong Kong-based Chen Hsong Holdings Ltd. posted a net loss of HK$59.9 million (US$7.6 million) in its 2015 interim report, slipping into the red from the HK$18.7 million (US$2.4 million) profit of the year-ago period.
Revenue declined 24 percent to HK$ 651 million (US$83.9 million). Gross profit dropped 20 percent to HK$137.5 million (US$17.7 million).
Revenues from Mainland China and Hong Kong — which represent two third of Chen Hsong's business — dipped 12.2 percent, Taiwan sales decreased 8 percent, but the category of “other overseas markets countries” suffered the worst setback with a 45.2 percent decline.
The company said this is its first ever loss since its listing in 1991, and the main cause is the Chinese currency devaluation. Chen Hsong said it suffered “serious foreign exchange loss.”
Referring to Beijing's drastic currency devaluation in mid-August, Chen Hsong noted, “Such currency exchange reform created the largest two-day swing in the Renminbi exchange rates since 1994, throwing worldwide markets from stocks to foreign exchanges to commodities to precious metals to futures into turmoil. As the group kept most of its assets denominated in the Renminbi, similar impacts could not be avoided.”
On the other hand, since the yuan and Hong Kong dollar are linked to the U.S. dollar — which has been going strong, it worked against Chinese exports to other countries with substantial devaluation, especially for injection molding machines, Chen Hsong said.
For example, Chen Hsong said, it makes MMX two-platen injection molding machines on behalf of Mitsubishi under a manufacturing agreement. As the price gaps between China-produced and Japan-produced models continued to narrow due to the weak Japanese Yen, it impacted purchase decisions in the market.
These factors combined seriously depressed Chen Hsong's orders-in-take and deliveries for the first half of the fiscal year, directly causing the loss position.
On the flip side, the company said it has successfully launched its new “Sixth Generation” product line with strong customer acceptance, and it believes the new line will enable the company to recapture its previous market share in the future. It plans to launch more models in the second half of the year.
In search of alternative means to improve financials, the company rented out part of its new factory in Shenzhen. Chen Hsong said it not only increased its own manufacturing asset utilization, but also brings in steady rental income. It has reserved enough production capacity to meet HK$3 billion (US$387 million) of orders per year.
In its outlook for the second half, the company said it believes the market will continue to be difficult, and may even further deteriorate.
Chen Hsong said it has “always adopted a prudent and conservative management style and so will carefully assess and monitor the risk profiles of different market regions and segments as well as their liquidity positions in the second half.” It also aims to “leverage new product lines to raise market share while aggressively and consciously reducing its risk exposure.”