CHINESE HIGH-END NYLON yarn producer Li Heng Chemical Fibre Technologies sees opportunities in the current downturn to boost market share and strengthen core fundamentals to emerge even stronger than ever.
First quarter-to-March revenue was 473 mln yuan, down sharply from nearly 804 mln a year earlier, while profit attributable to shareholders fell considerably to 10.2 mln yuan.
However, due to adept adjustments to the sail during the doldrums, Li Heng’s first quarter net cash generated from operating activities rose to 253 mln yuan, versus 243 mln a year prior.
Hoping to reap what it sews
In the first three months of the year, Li Heng invested heavily in property, plant and equipment with the sum rising to 147.2 mln yuan, compared with an investment outlay of just 5.2 mln in the year-earlier period.
The company also reported that its end-March net asset value per ordinary share was 2.03 yuan against 1.75 for the same period a year ago.
“I think we managed a reasonable quarter during such volatile times due to our diligence in managing a few factors of our business operations,” said Li Heng Chairman Mr Chen Jianlong.
In an exclusive interview with NextInsight, he said the company is doing its best to see the silver lining amid the cloud cover.
Liheng's nylon yarn is used in high-end swimwear.When asked how Li Heng was managing affairs during slowing orders from China's sprawling network of clothing and garment exporters, he said the company has an established “risk management framework where we supply not more than 50% of our customers' total production requirement.
“Thus when demand was severely affected in the last few months of 2008 and into early 2009, we were not affected as severely.
"During this period, we also had new customers coming to us as some yarn manufacturers shut down their lines temporarily.
"Secondly, we also tightened our inventory to as short as one month to control our costs.
“We have never exported. All our products are sold in China.”
Li Heng’s determination was not sewn from shrinkable fabric, and it planned to confront challenges head-on despite a few occasional stitches.
“We trust that with our hard work, the investment community in Singapore and elsewhere in the world will come to appreciate that in the future,” said Mr Chen.
Li Heng was listed on the Main Board in Singapore on March 12, 2008.
Mr. Chen said Li Heng had no plans at this time to seek a secondary listing elsewhere.
When asked to provide insights into its expansion strategy, he said that despite the growing ranks of its domestic peers falling by the wayside, the company was still eyeing internal expansion.
”We are focusing on organic growth,” Mr. Chen said.
Much has been made of late of China’s phenomenal economic growth, with the World Bank last week even upping its 2009 growth forecast for the world’s third largest economy to 7.2% from an earlier 6.5% growth outlook for the year.
However, this enviable outlook does not mean Li Heng will suffer from wage inflation or chase lower working wages in less developed countries.
”Labor costs takes up a very small percentage of our SG&A while raw material prices are expected to rise slightly from current prices level,” Mr. Chen said.
He said he might see some indirect benefit from China’s much-discussed 4.5 trln yuan economic stimulus package.
“We will not see a direct benefit as we do not export but because Li Heng is part of the large textile industry, the downstream customers will benefit from the stimulus as well as export rebates hikes.
Therefore this boost of confidence is good for the overall sector.”
Separately, he said the government has reduced the import tax for caprolatum -- a critical raw material for Li Heng’s PA chip plant expected to complete by the third quarter of this year -- from 9% to 6.5%.
“This has direct benefits for us,” he added.
The company’s main competitors include Yantai Chemical Fiber Nylon, Qingdao Zhongda Chemical Fiber, Guangdong Xinhui Meida Nylon, and fellow SGX-listed peer China Sky Chemical Fiber.
Li Heng’s principal product lines are nylon HOY/POY (Highly Oriented Yarn/Partially Oriented Yarn), nylon FDY (Fully Drawn Yarn) and nylon DTY (Drawn Textured Yarn), and it manufactures them in a variety of different characteristics tailored in accordance with customer requirements.
Li Heng currently has two production facilities in Changle City, Fujian, with a total production capacity of 144,000 MT of nylon yarn per year from 37 nylon POY/HOY/FDY lines and 10 nylon DTY texturizing machines.
Li Heng Chemical Fibre Technologies, an investment holding company, engages in the manufacture and sale of high-end nylon yarn products to fabric and textile manufacturers in China.
Its product line comprises nylon highly oriented yarn or partially oriented yarn; nylon fully drawn yarn; and nylon drawn textured yarn.
The company offers its products under the Liyuan and Liheng brand names.
Its products are used in various commercial applications, including high-end casual wear, sportswear, swimwear, skiwear, lingerie, and home furnishings.
The company was founded in 2003 and is headquartered in Changle City, Fujian Province.
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