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IMD production is complex and few are reliable, says CFO Hau Khee Wee. Photo by Sim Kih

LEADING CHINESE mould maker China Kunda is one fortunate company. Its stock has survived the October market crash: It is currently trading at around the same level as its October 9th IPO price of 21.5 cents.

Yesterday, it reported that it increased its operating profit by 4.6% yoy to HK$31.4 million for the 6-month period ended 30 Sep 2008.

Operating margins expanded by a hefty 7.4 percentage points to 63.8% as the company shifted away from plastic injection parts, which saw gross margins erode from 9.8% in 1H08 to 7.4% in 1H09.

As a result, revenue decreased by 7.5% yoy to HK$49.2 million. 

“Technical fee income” for domestic sales grew 51% to HK$26.2 million.

As a rule of thumb, direct export sales are accounted for as revenue while orders placed by domestic customers are directed to its sub-contract manufacturer, Shenzhen Precision.

Shenzhen Precision makes moulds and in-mold-design (IMD) parts for China Kunda’s customers.  Mark-up fees charged by China Kunda appear as “technical fee income” on its profit and loss statement as this does not include cost of goods sold.

More than half of China Kunda’s earnings are contributed by Shenzhen Precision, which grew its 1H09 revenues 25% yoy to HK$67 million.
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Kunda management briefing analysts this morning. Photo by Adrian Seah

Export and domestic sales will be consolidated to China Kunda’s top line after it acquires Shenzhen Precision’s business assets, said China Kunda’s CFO Hau Khee Wee in an interview with NextInsight.

General and admin expense more than tripled to HK$12.2 million, largely due to an IPO expense of HK$5.7 million and R&D amortization of HK$2.9 million.

Net income attributable to shareholders grew 5.7% to HK$27.6 million.

IMD was a key growth driver during 1H09 - the result of shifting focus to domestic demand, said the CFO.
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Kunda reported a sharp jump in gross profit margin.

Segment sales doubled to HK$4.1 million at China Kunda and increased by 70% to HK$50.6 million at Shenzhen Precision.

Segment margins also improved, from 35% in 1H08 to as high as 73% in 1H09, thanks to economies of scale after Shenzhen Precision’s second IMD production line began full operation.

Shenzhen Precision’s sales of plastic injection molds for automobiles fell 31.4% due to a slow-down in deliveries.  Combined sales value of outstanding molds under construction for China Kunda and Shenzhen Precision had in fact increased 55% to HK$49.2 million.

These include low-pressure molding, which eliminate the use of toxic adhesives from the production process for luxury car interiors as well as manifolds, which draws air into engines for combustion.

”Demand for China Kunda’s sophisticated molds will be sustained by import substitution demand for high-end molds,” said the CFO.

”Demand for low-pressure molding and manifold molds will increase as these two products for luxury automobiles evolve to mass acceptance,” he added.

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Gross profit plus technical fee amounted to HK$44.3 million.


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For more about IMD and molds, read
CHINA KUNDA: Plastic injection molds as good as imported ones

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