Stable plastic piping system business;
Expands into the photovoltaic industry and develops a new growth engine
(29 August 2022 - 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 2022.
In the first half of 2022, facing the complicated and ever-changing global economic situation, the macroeconomic downturn, the resurgent pandemic conditions in the PRC, the continued volatility in the real estate sector, and fierce market competition, China Lesso as a leading industrial conglomerate that supplies the global market with piping and building materials, continued to adhere to the principle of developing business with prudence, the principle of “following the trend and making progress with prudence’’ and focused on “intelligent manufacturing and green business of photovoltaics”. The overall business developed steadily during the period. The Group’s revenue increased slightly to RMB14,890 million. Gross profit and gross profit margin were RMB3,943 million and 26.5% respectively, mainly due to the Group’s consumption of the high-priced raw materials which had been purchased in the fourth quarter of 2021 for the first half of the year. Even adjustments to the products’ prices were not able to completely offset the effect of the high-priced raw materials. Profit attributable to owners of the Group was RMB1,295 million. Basic earnings per share were RMB0.42. The Board has resolved not to declare an interim dividend for the six months ended 30 June 2022.
Plastic piping systems business has always been the main business of the Group. In the first half of 2022, undertaking the domestic post-pandemic economic recovery and persistently aligning its own development with the national policies and market demand, the Group continued the strategic expansion of its piping business while proactively investing in national projects of strategic importance and urban redevelopment projects by collaboration with leading central government-owned enterprises and state-owned enterprises in the infrastructure sector. The plastic piping systems business demonstrated stable performance. Revenue from the business slightly increased 1.5% to RMB12,763 million, accounting for 85.7% of the Group’s total revenue. However, sales of the Group’s plastic pipes and pipe fittings were affected to a certain extent by a weak demand on the market and the increasingly intensified competition, as well as the upward adjustment to the prices of the Group’s products and the Group’s decision to exercise prudence in dealing with accounts receivable from customers in the domestic real estate sector. Sales volume of the plastic piping systems decreased by 5% year on year to 1.12 million tonnes. Despite the significant fluctuation in the cost of raw materials in the first half of the year, the Group continued to take advantage of its economies of scale to exercise active control over the costs of raw materials and manufacturing, with adjustments to the selling prices in a timely manner, so that its gross profit margin was kept at a reasonable and healthy level of 26.4%.
The Group has been insisting on strengthening smart manufacturing and actively integrating resources in the upstream and downstream of the entire value chain of the industry, comprehensively expanding its automated and smart production with a focus on investing in the construction of smart factories. During the period, the Group achieved a further increase in its production capacity in line with its business development plan. The Group’s annual designed capacity for manufacturing plastic piping systems expanded from 3.20 million tonnes at the end of 2021 to 3.22 million tonnes, and the capacity utilisation rate reached 70.3%. In response to the state’s striving for the strategic dual goal of “carbon emission peak” and “carbon neutrality”, the Group takes the initiative in building a comprehensive green manufacturing system focused on low energy consumption and high energy efficiency. Its subsidiary Guangdong Liansu Technology Industrial Co., Ltd. was successfully selected as the 2021 National Green Factory, fully demonstrating the government’s recognition of China Lesso’s effort to promote green development in the industry.
In addition, the Group has actively developed its new business segment of stainless steel pipe products by continuing to strengthen on its promotion efforts to seize opportunities for development. At present, the Group’s factory in Foshan carries out mass production of stainless steel pipe products, with an annual production capacity of 450 tonnes.
In the second half of 2022, the Group will fully grasp the development opportunities in the government’s initiative in building the “new type of infrastructure” under its policy of stabilising economic growth. The Group will further develop the market for plastic piping systems and accelerate the development of the market for smart pipeline networks. The Group will keep on seeking strategic partners, including government agencies, central government-owned enterprises and private enterprises. Such move will enable all parties to complement each other with their respective advantages, to share information and thus achieve synergies. This will further consolidate the Group’s market leadership.
The Group remained committed to broadening the scope of application of plastic pipes and pipe fittings, and actively extended it to the agriculture. The efforts not only enriched the Group’s income sources, but also expanded its market share and boosted its sales growth. The Group will fully grasp the development opportunities brought by the favorable national policies for the development of the industry to continue to expand the plastic piping systems business. In addition, the Group will continue to look for potential partners. The Group formed strategic partnership with different private enterprises successively. Such move enabled all parties to complement each other with their respective advantages, to share information and thus achieve synergies, to improve the quality of urban construction in different regions. The act also can help speed up the improvement of cooperation areas, and increase the market share and regional competitiveness of the Group. This will further consolidate the Group’s market leadership.
Regarding overseas market development, the Group continues to expand overseas markets with a focus on the Southeast Asia. The Phase 1 of the production base in Indonesia has been put into operation and additional production lines will be built to expand the production capacity in the second half of 2022. Meanwhile, the production base in Cambodia will also speed up its transformation and its operation is scheduled for commencement in 2023. Furthermore, the Group is steadily pushing forward with the construction of production bases in such countries as Thailand, Malaysia, Philippines and Bangladesh.
In view of the building materials and home improvement business, in the first half of 2022, increasing downward pressure on the economy, the tighter regulation of the real estate market and the COVID-19 pandemic dealt a blow to the building materials and home improvement industry. During the period, revenue from the Group’s building materials and home improvement business was RMB1,219 million, representing 8.2% of the Group’s total revenue. Considering the higher capital risks associated with private real estate companies as its customers, the Group proactively diversified its customer portfolio by shifting the focus of its business to the infrastructure projects which were mainly undertaken by the government and funded by state-owned capital. Meanwhile, the Group further strengthened the relationship with premium real estate companies as its existing customers, and also vigorously explored the possibility of cross-sector collaboration. This will not only further broaden the customer base, but also provide the Group with a more stable source of income.
During the period, the Group signed a strategic cooperation agreement with a B2B building materials procurement and trading platform, aiming to provide customers with more comprehensive, better and more efficient services through its new model of synergistic development in combination with the social services enabled by the real estate sector’s supply chain. Moreover, the Group has concluded an agreement about strategic cooperation with a well-known supply chain enterprise on the product supply side, aiming to develop joint venture projects focused on the building materials supply chain based on the government platform, so as to share resources and conduct mutually beneficial cooperation. The Group proactively established a number of home improvement boutique stores of China Lesso, hoping to enable its building materials and home improvement business to scale new heights in its development through such boutique stores and its corresponding sales channels. In the future, China Lesso will continue to explore a wider home improvement market and enrich its business portfolio along the value chain of the industry.
In the second half of the year, the real estate market is expected to gradually stabilise and recover due to the continued introduction of policies favourable for the stable and healthy development of the real estate sector. The Group will actively give full play to the synergy between the piping business and its building materials and home improvement business, increase investment in scientific research, and cultivate technical talents. On the other hand, it will establish product research and development centers that are technology-driven to innovate and upgrade eco-friendly products. All these initiatives will further advance the healthy development of the supply chain and restore growth in the business of building materials and home improvement.
At the beginning of the year, the Group expeditiously clarified its business strategy, and adjusted its organisational structure, and put technology as the lead. Following adjustments and efforts made in the first half of the year, the Group’s revenue from environmental protection business amounted to RMB144 million. During the period, the Group’s environmental protection business developed the market of the traditional industries and secured leading enterprises as new customers, including one in the domestic beverage industry with whom the Group signed contracts to undertake several wastewater treatment projects. In terms of business development, the Group aligned its development with national policies, secured projects in the areas of watershed water environment, ecology and water environment, and treatment of aquaculture sewage respectively through internal or external cooperation, proving that the strategy established at the beginning of the year started bearing fruits. In the second half of the year, the Group will continue to explore the opportunities of servicing government projects when developing the market, with a focus on such fields as the agricultural sectors, the treatment of soil, maintenance of water quality and provision of technical services.
In addition, the Group has completed construction of new facilities for the comprehensive utilisation of renewable resources in the processing industry in Foshan City, Guangdong Province and Yueyang City, Hunan Province, respectively. In the second half of the year, and use its resources to explore the markets of Xinjiang and Henan. As for the markets of Guangdong Province, the Group will focus on exploring the markets of such cities as Yunfu, Meizhou and Huizhou, with a view to gaining greater market shares there.
During the period, despite the resurgent pandemic conditions, the supply chain services platform business recorded revenue of RMB483 million due to the expansion of the supporting services. To further enhance the operating capability of the supply chain service platform business, the Group has acquired an internet technology company focusing on cross-border e-commerce services,
namely Shenzhen EDA Cloud Technologies Co., Ltd, to further broaden its supply chain service platform business and drive an increase in revenue. The Group’s current malls in four Southeast Asian countries, including Bangkok in Thailand, Tangerang in Indonesia, Yangon in Myanmar, and Phnom Penh in Cambodia, successively opened at the end of 2021, with a total new leasable area of approximately 80,000 square meters, which can generate stable income from leasing and management fees to the Group. Looking ahead, the Group plans to further expand the distribution network in Southeast Asia, and seize the business opportunities by driving the long-term development of the business segment.
China Lesso seized the opportunity to achieve green transformation. In early January this year, it announced the establishment of Guangdong Lesso Banhao New Energy Technology Group Co., Ltd. (“Lesso Banhao”), aiming to enter the photovoltaic industry and develop a new growth engine for the Group. Lesso Banhao takes an active part in adopting domestically and internationally advanced equipment, while constantly developing new technologies to provide global industrial and commercial enterprises and household customers with integrated energy solutions. The Group expects the photovoltaic business will have a strong synergy with the Group’s existing businesses and sales channels. In April this year, the first photovoltaic production line of Lesso Banhao started a trial run, marking a new stage of production on an industrial scale. In addition, the company has established a proven system and is signing contracts over orders for its products. Meanwhile, Lesso Banhao will invest in research and development with the aim of developing market-leading BIPV products and solutions, which are expected to be launched by the end of this year. During the period, Lesso Banhao fully capitalised on the market trend set by the state’s strategy of attaining “carbon emission peak” and “carbon neutrality”. It enters into strategic cooperation agreements with state-owned and private enterprises to jointly explore the photovoltaic market. Although the photovoltaic business only contributes an insignificant percentage of the Group’s revenue, the management expects that the photovoltaic business will continue to be supported by national policies and will embrace a bright future that the photovoltaic business will add new impetus to the growth in the Group’s revenue in the future.
Mr. Wong Luen Hei, China Lesso Chairman and Executive Director said, ‘‘In 2022, facing the complicated and ever-changing global economic situation and fierce market competition, China Lesso will continue to adhere to the principle of developing business with prudence, seek to reduce cost and raise efficiency, and further deepen the reform and upgrade its business by means of intelligent manufacturing. Meanwhile, it will lead the industry’s green and sustainable development through technological research and development and thus provide green products and services. It will also enhance the synergy among its diverse businesses, optimise both the team and marketing management, and follow the trend and pursue progress with prudence so as to generate long-term returns for shareholders. ’’
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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. China Lesso is one of the constituent stocks of the Hang Seng Composite MidCap Index and MSCI China index and is a stock eligible for trading through the Hong Kong Stock Exchange’s Stock Connect. After more than 36 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, photovoltaic solutions, 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 2,706 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.
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