BRIGHT WORLD Precision Machinery (SGX: BMPM), a maker of stamping machines and finished metal parts, more than doubled its FY10 net profit to RMB125 million.
It was buoyed by strong demand for stamping machines from the PRC automotive and home appliance sectors.
Bright World's turnover shot past the billion renminbi mark.
NextInsight reader Mervyn Teo recently (ie, prior to the release of the 4Q results) put several questions to Bright World CFO Samuel Ng, who has just replied as follows:
Mervyn: Why did 3Q gross margins for high performance/tonnage machines decline (& display more volatilility) vs. conventional machines which rose?
Bright World CFO Samuel Ng: As for high performance/high tonnage, this happened due to low capacity utilisation and an increase in manufacturing overhead costs. Regarding conventional, it was due to high capacity utilisation and the effect of upward adjustment in average selling prices in 1Q.
What is your breakdown by contract value of your suppliers and clients?
CFO Ng: Our biggest steel supplier has a purchase value of 19.6% of our total purchases. The rest are spread evenly. As for customers, none of them have a sales value of over 3.5% of total revenue and each averages less than 1%.
What are your various costs components for producing machines and are there any risks of inflation (ex metal prices)?
CFO Ng: Raw materials include steel, iron and copper. Utilities are lighting, electricity and direct labour. Overhead includes depreciation, wages and consumable goods. Excluding metals, there is low risk of inflation.
With 100 conventional machine makers and 20+ high end machine makers in China, how does the firm differentiate its products?
CFO Ng: We stay on top of our PRC competitors with superior products – high quality, reliable and durable, with hi-tech motors installed. And we are building up our brand name, one that is well established with over 50 years experience in this industry.
Does the firm have research budget, patents and team? If yes, how much is it p.a?
CFO Ng: Research budget for year 2011 is RMB 50 mln. We have registered patents for our developed products and more than 200 R&D staff.
Which firms does Bright World collaborate with other than Japan AIDA and how does it work? Why are they willing to share their technology?
CFO Ng: We only have Technology Collaboration with AIDA in which they provide technology and technical support and we provide facilities and labour. AIDA is willing to work closely with us because manufacturing quality is of a very high standard, we have advanced capital goods equipment, and we are very efficient and effective. These advantages enable our products to meet the requirements from their customers. It is a win-win partnership.
How will the production growth decline in the automotive sector in China and globally affect the firm?
CFO Ng: Overall, the growth rate is slowing somewhat in the automotive industry, but this section is still a big pie and there are new markets in different locations that we can penetrate and venture into. Furthermore, upgrade and changes in technology in automotives industry required new stamping machines.
What are the current capacity/lines of the firm and the utilization rates for these lines?
CFO Ng: The average utilisation rates for year 2010 for our entire production is at 75%.
What are the next targeted segments and future growth plans?
CFO Ng: Our next targeted segments are railways and hydropower.
Given that your machines are reusable for say 10-15 years, is it right to say the amount spent per machine is not recurring and in fact is a small component of the government's total planned RMB 700 bln expenditure? One machine is typically RMB 5-10 million?
CFO Ng: The stamping machine industry will play an increasingly important role, as China is in the process of become an ever stronger fully industrialized country. Industrial upgrading, to seize the opportunity to evolve from a traditional manufacturing country to a high tech manufacturing country creates tremendous demand. One machine typically ranges from RMB 10,000 to RMB 2 mln.
Where did the firm borrow its debts from - specifically the country and region?
CFO Ng: Jiangsu, China
What was the rationale for the takeover in 2008 and are other such opportunities are still available, since there are so many other machine producers in China?
CFO Ng: It is because the partners appreciates and understands the manufacturing industry, and able to give us higher P/E. There are always additional opportunities.
Bright World's press release on its full-year results is available on SGX website.
See also:
BRIGHT WORLD, SINO GRANDNESS, UMS: What Analysts Now Say...
SITE VISIT: BRIGHT WORLD Stamping Major Name For Itself In PRC
