China Lesso Announces 2018 Interim Results Plastic Piping Systems Business Developed Steadily with Earnings Maintained at Healthy Level

Revenue rose by 16.4% year on year to RMB10,448 million

Profit attributable to the owners of the Company
amounted to RMB1,041 million

Results Highlights:

(28 August 2018, Hong Kong) – China Lesso Group Holdings Limited (“China Lesso” or the “Group”, HKEx stock code: 2128), a leading large-scale industrial group making building materials and interior decoration products in mainland China, today announced its interim results for the six months ended 30 June 2018 (the “Period”).

In the first half of 2018, the Chinese government continued to press on with its policies on energy conservation and environmental protection, and actively pressed on with the development of multiple large-scale municipal projects and urban infrastructure construction. As a result, demand for pipes and pipe fittings remained steady. During the Period, the Group’s revenue increased by 16.4% year on year to RMB10,448 million. On the back of the Group’s economies of scale, expanded production capacity and effective cost control, the group’s gross profit rose by 10.6% year on year to RMB2,721 million, and gross profit margin stood at a healthy level of 26.0%. Profit attributable to the owners of the Company increased by 7.2% year on year to RMB1,041 million. Basic earnings per share increased by 9.7% year on year to RMB0.34 (First half of 2017: RMB0.31). The Board of Directors announced payment of an interim dividend of HK10 cents per share (First half of 2017: Nil).

The plastic piping systems business is the mainstay operation of China Lesso. The Chinese government continued to invest massively in municipal projects and infrastructure construction, and carried out many infrastructure projects to drive the economic growth, thus stimulating the demand for plastic piping systems. During the Period, the Group actively capitalized on these government measures, and the move helped to boost the sales volume of its plastic piping systems. Revenue from the plastic piping systems business increased by 17.0% year on year to RMB9,400 million, accounting for 90.0% of the Group’s total revenue. The total sales volume at this business unit rose by 13.3% year on year to 985,418 tonnes. Although the average costs of raw materials increased in the first half of 2018, the Group has always priced its products according to the costs. The Group has maintained its gross profit margin at a reasonable and stable level by effectively reducing the costs of raw materials and production by leveraging its economies of scale, massive procurement from raw materials suppliers. During the Period, the gross profit margin reached 26.8%。

As to the operating environment of the business of building materials and interior decoration products, the Chinese government continued with its firm policy on the regulation of the real estate market in the first half of 2018, and adopted city-specific policies. This reined in the rising housing prices and thus exerted downward pressure on the growth in the real estate market. The growth rates of floor area sold and sales value of housing continued to decline nationwide. During the Period, despite unfavourable external factors, the Group’s building materials and interior decoration products business generated income of RMB559 million, which was similar to RMB560 million for the corresponding period of 2017, and accounted for 5.3% of the Group’s total revenue. However, the continued progress of China’s new mode of urbanization will enable synergy between the Group’s business of building materials and interior decoration products and its other businesses of existing product lines. This can lead to steady development again of the business of building materials and interior decoration products.

To capitalize on the Chinese government’s environmental protection initiatives, the Group is actively expanding its environmental protection business. During the Period, the Group actively grasped opportunities arising from municipal projects in various fields, including those of municipal sewage system, river treatment, soil restoration, underground pipeline utility tunnel, sponge city and the installation of integrated water purifiers. All these projects drove up the demand for plastic pipes and pipe fittings. This will enable the Group’s environmental protection business to achieve synergy with its business of plastic piping system in the long run. The Group aspires to become a one-stop environmental protection service provider and to enable people to live eco-friendly lives.

To benefit from China’s Belt and Road Initiative, the Group actively developed overseas markets with its business called “Lesso Home” which was a “One-Stop Specialised Market for Home Furnishing Products”. Lesso Home aims to build a multinational platform for Chinese home furnishings and building materials manufacturers to showcase their products and facilitate the distribution and retailing of such products. Lesso Home will also provide ancillary services, including marketing and branding. The Group has reserved properties for the development of this line of business in the United States, Canada, Australia, Thailand and United Arab Emirates. All of the properties are near to major metropolitan areas.

A geographical breakdown shows that southern China remained the Group’s major revenue contributor. The Group has been actively expanding its businesses in regions outside southern China to boost its overall sales value. During the Period, revenue from southern China and other regions accounted for 54.6% and 45.4% respectively of the Group’s total revenue.

The Group has been expanding its production capacity in line with its business development to meet the demand. Also, it has been making further progress in automatic production and smart production, and it has been trying to fully mechanize the production lines for pipe products so as to increase overall production capacity and efficiency and to enhance quality. During the Period, the Group’s annual designed capacity for the production of plastic pipes and pipe fittings increased to 2.53 million tonnes from 2.40 million tonnes in 2017, while the capacity utilization rate reached 82.9%. Capital expenditure for the first half of 2018 was approximately RMB564 million.

Mr. Wong Luen Hei, Chairman and Executive Director of the Group, said, “Looking ahead to the second half of 2018, the prospect of the global economy will still be clouded by uncertainties, which will pose more challenges to businesses. We remain cautious about the prospect of the business and will try to make steady progress in development. We will actively capitalize on the government policies which favour the kind of businesses we engage in so that impetus can be added to the Group’s sustainable development.

In the future, we will continue to have our production automated and to develop intelligent factories by further improving the mechanical equipment and the auxiliary facilities in existing production bases. This move can expand production capacity and increase production efficiency. The Group will vigorously enhance its competitiveness in research and development of products and technologies of building materials and interior decoration business, accelerate the transformation and upgrading of its business, and develop market networks. In addition, the Group will actively grasp opportunities for business by forming public-private partnerships and by fostering new growth drivers in a way that enables synergy between its environmental protection business and other businesses. It will also diversify its source of income. Meanwhile, the Group will continue to steadily develop the “Lesso Home” business in response to changes in markets around the world. As a market leader, China Lesso will strive to expand the scope of applications of plastic pipes and pipe fittings to increase product sales so as to maintain its market leadership and generate good returns to shareholders and investors.”

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About China Lesso Group Holdings Limited

China Lesso Group Holdings Limited is a leading large-scale industrial group, making building materials and interior decoration products in mainland China. It is listed on the main board of The Stock Exchange of Hong Kong Limited (stock name: China Lesso, stock code: 2128). China Lesso is one of the constituent stocks of the Hang Seng Composite Index – MidCap and has been included in the scheme of Shanghai-Hong Kong Stock Connect and Shenzhen-Hong Kong Stock Connect and is tradable under Hong Kong Stock Link.

The Group provides over 10,000 kinds of quality products, including plastic piping systems, sanitary ware products, integrated kitchens, systems of doors and windows, decorative plates, fire-fighting equipment, and sanitary materials, etc. They are widely applied to such fields as interior decoration, water supply, drainage, power supply and telecommunications, gas transmission, agriculture, floor heating and fire services. The Group is positioned as one of the manufacturers who offer the most comprehensive range of building materials and interior decoration products.

The Group has 22 advanced production bases in 16 regions, namely Guangdong, Guizhou, Sichuan, Hubei, Jiangsu, Anhui, Zhejiang, Henan, Hebei, Jilin, Shaanxi, Xinjiang, Hainan, Yunnan, Shandong and Hunan. The Group has established a nationwide sales network and has also developed long-term strategic partnerships with 2,172 independent and exclusive first-tier distributors to provide quality and comprehensive products as well as professional services for customers.

For further information, please contact:

iPR Ogilvy & Mather

Callis Lau / Gary Li / Wing Chak / Gigi Cheung

Tel:        (852) 2136 6185

E-mail: lesso@iprogilvy.com