(28 August 2023 - Hong Kong) China Lesso Group Holdings Limited (“China Lesso” or the “Group”, SEHK stock code: 2128), a leading large-scale industrial group that manufactures piping and building materials in mainland China, announces today its interim results for the six months ended 30 June 2023.
In the first half of 2023, China’s economic recovery was sluggish while its property sector was in the doldrums, thus still exerting intense pressure on businesses. Nevertheless, China Lesso steadfastly adhered to the direction of its development, namely “further developing the piping business and capitalising on the emergence of green energy for mutual benefit”, and demonstrated strong resilience by maintaining steady development in its business. During the period, the Group’s revenue increased slightly to RMB15,297 million. Gross profit was RMB4,259 million and gross profit margin increased to 27.8% which was mainly due to a year-on-year decline in the costs of the raw materials, the timely adjustments to the products’ average selling prices and an increase in the total sales volume. Profit attributable to owners of the Group was RMB1,494 million. Basic earnings per share were RMB0.49. The Board has resolved not to declare an interim dividend for the six months ended 30 June 2023.
Plastic piping systems business has always been the main business of the Group. In the first half of 2023, the Group, as always, aligned its business with the state policies and market demand by capitalising on the state’s expansion of the piping systems and the rapid development of smart pipeline networks. Meanwhile, the Group continued to strengthen its strategic partnerships with government departments and leading central government-owned and state-owned infrastructure construction enterprises by proactively participating in projects of national development plan and urban redevelopment projects. The Group thus achieved synergies with its strategic business partners and consolidated its leading position in the piping market. The plastic piping systems business demonstrated stable performance. Revenue from the business amounted to RMB12,233 million, accounting for 80.0% of the Group’s total revenue. During the period, the Group adjusted its sales strategy and further diversified its product portfolio according to the market conditions. This boosted the sales of its plastic pipes and pipe fittings. Sales volume of the plastic piping systems increased by 13.9% year on year to 1.275 million tonnes. As the Group continued with its effective procurement strategy, took advantage of its economies of scale to proactively control costs and made timely adjustments to its sales strategy so that its gross profit margin increased to 30.0%.
The Group proactively aligns its development with China’s strategy of transforming itself into a manufacturing powerhouse. Therefore, it has fully embarked on the upgrading and transformation of its business and has sped up the profound integration of new-generation information technology with manufacturing. Presently, the Group has already established smart factories in its production bases in China by adopting such technologies as the Internet of things, smart control and automated production. The Group’s annual designed capacity for manufacturing plastic piping products is 3.21 million tonnes, and the capacity utilisation rate during the period reached 75.8%. In the future, the Group will take an all-out effort to build digitalised, smart factories so as to efficiently provide integrated quality products and services for residents around the world.
The Group also continued to further develop its principal business and explored the possibilities of product diversification and innovation in multiple areas both horizontally and vertically by giving full play to its own advantages in the industry. It was extending the scope of the applications of its piping in such fields as industries, agriculture, transmission of petroleum and natural gas, urban services, ventilation system and fire services, etc. It also kept launching new products as it aspired to develop a comprehensive range of specialised products, thus broadening its customer base.
Since the resumption of international business, the Group has grasped the opportunities to further develop overseas markets with the aim of enhancing its brand’s influence and penetration in overseas markets. During the reporting period, the Group continued to improve its business presence and market coverage overseas, speed up the localisation of its brand in overseas markets, and improve its overseas supply chain. The Group localised its production at its production bases in Indonesia and Cambodia so as to meet the local customers’ needs more efficiently. Moreover, the second phase of the construction of the Group’s production base in Indonesia was progressing steadily.
Looking ahead, the Group will continue to seek strategic partners in government departments, central government-owned and civilian-owned enterprises. This will enable all the parties to complement each other with their respective advantages, share information and attain synergy. The Group will thus be able to consolidate its market leadership. Furthermore, the Group will forge ahead with the intelligentisation and digitalisation of its business and, at the same time, facilitate the digital transformation, Internet-enabled coordination and intelligentisation of many other manufacturing companies. The move can contribute to the high-quality development of the Group’s business, add impetus to the establishment of its smart factories and set it on the path to green, environmental and sustainable development. Overall, the management is confident about the future of the plastic piping business and believes that it will continue to perform steadily.
In view of the building materials and home improvement business, in the first half of 2023, even though the property market was gradually returning to normal, some property firms had yet to ameliorate the problem of risks that had snowballed over a long period of time. Moreover, the growing presence of the central government-owned and state-owned enterprises could herald further market concentration. The mounting pressure exerted by the nationwide housing market correction is something to be reckoned with. As a result, the building materials and home improvement industry was also affected to a certain extent. During the period, revenue from the Group’s building materials and home improvement business was RMB1,341 million, representing 8.8% of the Group’s total revenue. As the central government-owned and state-owned enterprises which had ample capital stepped up their efforts to undertake property development projects, thus playing a key role in the property sector, the Group proactively diversified its client base by seeking to undertake more projects led by the government and state-owned enterprises and by decreasing the proportion of civilian-owned property companies in its client base. The move reduced the Group’s business risk and, at the same time, strengthened its client base. The Group also sought cross-industry cooperation with companies in various industries so as to stabilise the income source of its building materials and home improvement business.
In the second half of the year, the government is also expected to step up its policy by introducing more targeted measures to stimulate the property market and by adjusting and optimising such policies in a timely manner. This can help stabilise both the market’s performance and the growth in consumption. The Group will continue to focus on the product quality and improve its one-stop total solution and services. It will help promote healthy, green construction with its diverse, high-quality building materials and home improvement products and services. Meanwhile, the Group will grasp opportunities in the construction of property projects to optimise its client mix by proactively developing business with new clients in a strong financial position to boost sales.
The Group always attaches great importance to environmental protection and has proactively responded to the state’s policy on environmental protection by fostering its own environmental protection business. However, slowdown in both the economic recovery and industrial investment in China, coupled with the decreases in the number of construction projects and production, led to a decline in hazardous waste in the first half of 2023. During the period, the Group’s environmental protection business recorded a revenue of RMB176 million.
The Group focused on expanding its environmental protection business by securing new business with leading enterprises and with some key customers in the traditional industries. In the urban service sector, the Group mainly developed the markets of key regions and actively provided regional environmental consulting and design services. This, coupled with the strengthening of the Group’s core business in which it had a competitive advantage, laid a solid foundation for the sustainable development of its business in the future. In addition, the Group extended the scope of its business in alignment with the state policies, especially the government’s strategy of attaining the carbon emissions peak and carbon neutrality. Therefore, it focused on developing its environmental business extensively in the areas of the treatment and operation of water environment, water ecology, and soil and mine remediation, with the aim of enabling a green life for society. In the future, the Group will continue to explore the possibilities of collaborating on government projects when developing the market, with a focus on such fields as the agriculture, the treatment of soil, maintenance of water quality and provision of technical services, thus creating more favourable conditions for its future development.
International business has resumed after the Covid-19 pandemic has shown signs of abating. During the reporting period, the supply chain service platform business recorded revenue of RMB579 million. The Group adopted a prudent strategy for development in the light of weak global investor sentiment, and so slowed down its investment in this business segment. The Group will consider disposing of some overseas assets in that business according to the market conditions. Such move not only will increase the cash flow and mitigate the liquidity pressure, but also increase the shareholder return. Looking ahead, the Group will make steady progress in this business segment according to the market conditions and its business performance.
In June, the Group announced its proposal to spin off its subsidiary EDA Cloud Technology Holdings Limited (“EDA”), and applied to Stock Exchange of Hong Kong Limited for the listing of EDA. The Group believed that the proposed spin-off would be able to create greater value for itself, own a separate fund-raising platform and broaden its investor base through the global offering of EDA’s shares. In addition, the proposed spin-off will enable both the Group and EDA to focus on the key developments of their respective businesses, and improve EDA’s business operation and financial management.
The Group aligned itself with the state’s green development by proactively building up its new energy business with its own advantage of resources, thus capitalising on the state policies and the bright prospect of the market. Leveraging the advantageous resources of the Group’s principal business of piping, Lesso New Energy Development Private Limited (“Lesso New Energy”) rapidly built up its business portfolio and enabled the new energy business and the piping business to share resources, add impetus to each other’s development mutually and attain synergy. In the first half of 2023, the new energy business recorded revenue of RMB739 million, accounting for 4.8% of the Group’s total revenue.
During the period, Lesso New Energy’s production base in Wusha Industrial Park, Shunde, Guangdong province, was put into operation. In February 2023, Eastern China operation centre in Suzhou, Jiangsu province is established to speed up the development of the new energy business. Lesso New Energy’s first overseas production base will be established in Indonesia soon. The move will increase Lesso New Energy’s photovoltaic module production capacity and enable it to develop new overseas markets.
Although the new energy business is still at the stage of expansion and only makes a limited contribution to the Group’s revenue and profit, it helps the Group expand into overseas markets and overcome the problem of the changes in the economy. It also operates in a huge potential industry for development and will become a new source of income for the Group. In the future, Lesso New Energy will continue to enhance its technology development capability by exploring the possibilities of new modes of cooperation with various types of companies and, at the same time, closely monitor the changes in the market conditions so as to adjust the pace of its development accordingly in line with the Group’s prudent business strategy.
Mr. Wong Luen Hei, China Lesso Chairman and Executive Director said, ‘‘China is on a bumpy path to an economic recovery, and it is expected to press on with its economic stabilisation policy in the second half of 2023. China Lesso will maintain its prudent approach to business development and remain committed to its missions by adopting the concept of sustainable development, giving full play to its smart manufacturing capability as its core competency, and innovating and upgrading its
products. All these measures will add impetus to the Group’s high-quality development. It will keep fostering the development of its principal piping business and, at the same time, answer the state’s call for transition to new energy by proactively developing its businesses of environmental protection and new energy. Through these measures, the Group contributes to the state’s quality development and, at the same time, builds up its ecosystem of efficiently-run, green, smart technology-enabled and diverse businesses, thus laying a solid foundation for its sustainable development and generating shareholder return for the long term.’’
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About China Lesso Group Holdings Limited
China Lesso Group Holdings Limited is a leading large-scale industrial group that manufactures piping and building materials in mainland China. After 37 years of rapid development, the Group has evolved into a leader in the industry of building materials and home improvement. It provides high-quality products and services such as plastic piping, building materials and home improvement, new energy, environmental protection, and operates a supply chain service platform.
Currently, the Group has established over 30 advanced production bases in 18 provinces of China and in foreign countries. The Group has established a nationwide sales network and has also developed long-term strategic partnerships with 2,807 independent and exclusive first-tier distributors that enable timely and efficient supply of comprehensive, quality products and professional services to customers. As an integrated manufacturer of a comprehensive range of piping and building materials, China Lesso provides over 10,000 types of quality products, which are widely applied to such fields as home improvement, civil architecture, municipal water supply,
drainage, energy management, electric power transmission, telecommunication, gas supply, fire services, environmental protection, agriculture and marine aquaculture.
For further enquiries, please contact:
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