Lizhong Wheel's capacity will increase to 5.6 million wheels a year by Jul 08. Photo by Gabriel Tan
CHINA’S AUTOMOTIVE demand remains hot despite government curbs on financing.
Unit sales of passenger vehicle in China grew 20% during 1Q08 to reach 1.85 million, according to China Association of Automobile Manufacturers.
Lizhong Wheel, one of China’s largest aluminum wheel makers, posted a jump in 1Q08 net earnings of 42% y-o-y, to reach Rmb 35.2 million.
The S-share, which has a market cap of S$135 million, closed at 57.5 cents at half time today, up 1.5 cents after its results were announced after the close of the previous trading day.
1Q08 sales had grown 12% to reach Rmb 236.1 million.
Net margins grew 3 percentage points due to the following reasons:-
* Maintenance of margins despite a brief spike in aluminum prices:
Gross margins improved half a percentage point y-o-y to reach 17.1% in 1Q08. Winter storms in southern China during 1Q2008 affected major aluminum producers but the company maintained margins by implementing stringent cost control.
* Convertible bonds and forex gains:-
Other operating income of Rmb 14.6 million largely due to
1) Fair value gain on convertible bonds issued of Rmb 4.9 million; and
2) Revaluation of US dollar liabilities which had depreciated against the yuan
***
The management had met shareholders during its AGM held in Singapore’s Suntec City Convention Center on 30 Apr.
Summary of the Q&A that transpired between the management and shareholders:
Q: Can you give an update of the progress construction of the Tianjin plant?
The Tianjin plant is integral to Lizhong Wheel’s corporate direction.
| End 2007 | Building façade on about 40,000 sq feet of land completed |
| Feb 2008 | Installation of production lines which began in 3Q07 was completed |
| Mar 2008 | Trial production |
| Apr 2008 | Commercial production |
| Jul 2008 | Completion of Phase One; i.e. additional capacity of 2 million wheels to reach a total of 5.6 million wheels a year |
Wheels with larger diameters are in demand these days, says executive chairman Zang Ligen.
Q: How have average selling prices changed in 2007?
Lizhong has over 400 product categories and over 2,000 models currently. Retail prices for wheels of identical diameter can be amplified by slight design modifications.
Before Lizhong was listed in 2005, most wheels in the market had diameters of 14” to 15”. Larger wheels of 16” to 17” diameters, which retail for more, are in popular demand today.
From a market perspective, average selling prices for wheels have remained stable. Prices of other automotive parts, however, have spiked. This is due to the increase in aluminum prices.
Q: How is the JV with the South Koreans progressing?
We have been qualified as supplier. We are at the price tender stage.
Editorial note: A joint venture (Tianjin Nano Machinery Manufacturing) was formed by Lizhong Wheel in Feb 2008 to develop, produce and sell aluminum alloy wheel moulds and related equipment and services. The JV’s managing director and technical consultant bring South Korean technology to the table.
Q: What competition does Lizhong face (for moulds)?
This is a contract that Lizhong has secured.
Q: What is the contract size?
We have a service agreement over the project life, typically 3 years.
Q: Is our focus still on saloon cars? Do we intend to manufacture wheels for trucks?
We are working on wheels with diameters of 18” to 24” used by large American trucks.
Q: Are designs developed entirely in-house or does the customer provide guidelines?
We have about 60-odd engineers now. 50-60 prototypes are developed each year. Most of these are selected by carmakers as to be OEM wheels.
The rest are retailed in the after market, both locally and as exports.
Growth of domestic income levels and consumption power will increase demand for aesthetically sophisticated wheels.
Q: Are designs patented?
We have more than 70 patents registered to date.
Q: Are there plans to issue new shares?
No.
