HU AN CABLE is enjoying growing revenue from the strong demand of China’ s power infrastructure upgrading and construction projects, but high operating cost has been putting a squeeze on its margins.
It ended the 9 months to 30 Sep 2011 with revenue of Rmb 2.4 billion, up 40.8%.
To ease China’s power shortage, its government has been accelerating power infrastructure development and Hu An managed to clinch 17 new large customers from the power sector, with each customer accounting for more than Rmb 5.0 million of revenue during the period.
"Household electricity consumption is an indicator of how developed a country is and households will become more wired as China develops," said CEO Dai Zhixiang at an analyst briefing last week.
The power generation and transmission sector accounted for 51.3% of Hu An Cable's cable and wire sales for 9M2011, as compared to 48.7% for 2010.
However, its pre-tax profit fell by 10.0% due to an increase in selling and distribution expenses, administrative cost and financing cost.
Selling and distribution expenses were up 87.9% at Rmb 49.9 million, administrative expenses were up 54.5% while finance expenses more than doubled to Rmb 41.3 million (up 130.7%).
The company generated net profit attributable to shareholders of Rmb 117.6 million for 9M2011, down 12.3% year on year.
Net profit margin contracted by 2.9 percentage points year-on-year to 5.1%.
Below is a summary of questions raised at the briefing and the replies provided by Mr Dai and CFO Sharon Xue.
Q: Will there be any provision for bad debts in 4Q2011?
In actual fact, we are unlikely to incur bad debt. Some provisions were made for state-owned projects like the construction of rail systems. Such projects take a long time to complete and we make provision as long as our receivables are longer than one year.
Q: Is all your debt from banks? Are you using any loan sharks?
We only borrow from banks, mainly from the Bank of China and the Agriculture Bank of China. We do not have high-interest loans from financing institutions.
Q: Is there any earnings seasonality?
The fourth quarter is usually better because there is a tendency for project managers to target completion by year-end. However, the sentiment for the fourth quarter this year is weaker due to the uncertain economic outlook.
Q: How is your new factory funded?
The project is funded by our IPO issue proceeds. This is a 5-year project costing Rmb 430 million. Rmb 88.9 million has already been invested, funded with proceeds from our TDR issue.
Q: How is your TDR issue doing?
One the average, more than one million Hu An Cable TDRs are traded daily.
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