CHINA WHEEL: Two suppliers to take up bulk of wheels at Tianjin

JV partners accelerate our market penetration, says CFO Zhang Jinli.

TWO KEY wheel suppliers have given undertakings to take up two-thirds of wheels produced at China Wheel’s new Tianjin plant in exchange for a 10% stake each in the plant.

Phase one of the plant, upon completion in the first quarter of 2008, will have a capacity of two million wheels a year.

With wheels selling at an average of Rmb 260-275, back-of-the-envelope calculations indicate that the undertakings will contribute some Rmb 350 million to China Wheel’s consolidated top line.

For perspective, Rmb 350 million amounts to 46% of China Wheel’s 2006 turnover of Rmb 760 million.

One of the two suppliers is Toyota’s qualified wheel supplier, Dicastal Wheel, which has agreed to sell a third of the wheels. The other supplier is the well-known Macau Ruizhi.

Dicastal Wheel and Macau Ruizhi will strengthen China Wheel’s distribution network in Tianjin and Guangzhou.

“Dicastal Wheel was China’s first aluminum wheel manufacturer and has first-mover advantage supplying to car makers in China,” says China Wheel’s CFO Zhang Jinli, speaking from China with NextInsight.

Dicastal Wheel, as Toyota’s qualified original equipment manufacturing wheels supplier, gives China Wheel the accreditation required for the use of its wheels at Toyota’s Tianjin plant.

Macau Ruizhi’s clout with Japanese carmakers in Guangzhou opens doors for China Wheel to Honda and Toyota plants there.

Tianjin is an automotive hub like Baoding where the company is based, but is without any large wheel maker (capacity more than a million wheels a year) as yet.  Zhang believes that phase one of China Wheel's new plant will make them the largest in the special economic zone.

Product functionality and form: China Wheel matches up to demand for quality by Japanese carmakers and design versatility by the aftermarket.

Carmakers have very strict quality requirements, while the aftermarket demands bandwidth in product design.  Most wheel makers make the grade for either customer segment but not both.

China Wheel’s R&D team of 50 experienced engineers deliver outstanding product form and functionality. Their designs reflect the latest trends and at lower cost of production.

Production and logistics procedures mimic Japanese efficiency such as Toyota’s.

China Wheel’s current capacity of 3.6 million wheels will be increased to 8.6 million when phases two and three of the Tianjin plant roll out by 2010.

Some RMB 780 million has been budgeted for the new Tianjin plant, which sits on a gigantic plot of land equivalent to 40 FIFA-sized football fields (285,000 square meters).

The wheel maker has no plans as yet to enter into joint ventures for phases two and three.

Rmb 780 million budgeted for Tianjin Dicastal Wheel Manufacturing to produce 5 million wheels a year by 2010.

Dicastal Wheel holds a 10% stake in Tianjin Dicastal while  Macau Ruizhi holds the remaining 10%.

Excluding land and building cost, Zhang is expecting capital expenditure of Rmb 150-170 million for the additional two million wheels a year.

Another Rmb 120 million will be needed for the new plant’s working capital.

Rmb 60 million has been paid up as Tianjin Dicastal’s registered capital.  The remaining monies will be financed by the subsidiary’s borrowings.

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