Trade tensions between the U.S. and China and difficulties in its home market are hitting Chinese equipment maker Chen Hsong Holdings Ltd., which reported that its profit fell 70 percent.
The company, which is one of China's largest makers of injection molding machines, said it was able to hold its own on sales — they rose 2 percent to HK$888.2 million (US$113.6 million) in the first half of its fiscal year, even as profitability tanked.
Chen Hsong's Nov. 28 earnings results came before Washington and Beijing announced a 90-day truce Dec. 1 in their tariff battles, so it's too soon to say what impact that would have, if any.
But the company's financials for the six months ending Sept. 30 echoed those of other Chinese plastics firms, indicating that the trade conflict was hurting manufacturing investment.
Chen Hsong said its profit fell 70 percent, to HK$20 million (US$2.6 million), as the company absorbed financial hits to maintain market share.
"The group faced an extremely challenging first half of this financial year," the company said, noting "sudden, and unusually acute" conditions in China's macro economy starting in July.
"This trade war has an immediate effect of surfacing some of China's hidden economic weaknesses, such as the near-to-crisis municipal debt levels," Chen Hsong said. "General market sentiments and customer confidence have been hit, with customers of the group generally [adapting] a wait-and-see attitude towards capital investments and capacity expansion."
The Hong Kong-based company said the uncertainty caused it to delay rolling out an upgraded version of its MK6 line of molding machines, although it said its MK6 and large, two-platen machines continue to do well in the market.
There was one bright spot. The company said sales outside of China, Hong Kong and Taiwan rose 18 percent, to HK$231 million (US$29.6 million), mainly from stronger sales in Europe, the United States and India.
It said that international growth was "primarily due to the success of recently introduced new products line breaking into a number of large multinational conglomerates."
Nonetheless, it noted many indicators of economic weakness in China, including in manufacturing exports, and it noted that the stronger U.S. dollar and weaker currencies in China and emerging markets like Brazil and Turkey also hurt its earnings.
As well, it said that pollution crackdowns in China that it had mentioned in earlier financial reports as a looming worry were starting to force adjustments for factories in its customer base.
"Other worries mentioned in the [company's] 2018 Annual Report also came into being, including an increasingly unprecedented harsh environmental protection policy adopted by the China government which continued to cause wide-spread shut-downs and remodeling for many manufacturing enterprises in the country," Chen Hsong said.
