China Lesso Announces 2022 Annual Results

(20 March 2023, Hong Kong) – China Lesso Group Holdings Limited (“China Lesso” or the “Group”, HKEx stock code: 2128), a leading large-scale industrial group that manufactures piping and building materials in mainland China, today announced its annual results for the year ended 31 December 2022 (the “Year”).

In 2022, facing the complicated and changing macro environment, the recurring Covid-19 pandemic at home and abroad, the downturn of the real estate industry in the PRC and fierce market competition, China Lesso as a leading large-scale industrial conglomerate that manufactures piping and building materials in mainland China, continued to adhere to the principle of developing business with prudence approach and put more focus on refining its business. The Group capitalised on the Chinese government’s favourable policies and the stable demand of the infrastructure and piping to continue developing its various business segments. The overall business developed steadily during the Year. The Group’s revenue amounted to RMB30,767 million. Gross profit was RMB 8,241 million. Gross profit margin increased slightly to 26.8%, mainly due to the timely adjustment on selling prices of the Group’s products for addressing the fluctuation of the raw material’s price. Profit attributable to owners of the Group was RMB2,517 million. Basic earnings per share were RMB0.82. The Board recommended the payment of a final dividend of HK30 cents per share for the year ended 31 December 2022.

The plastic piping systems business is the mainstay operation of the Group. In 2022, given the consistent introduction of growth stabilisation policies by the central government, the prosperity of infrastructure sector, as an important pillar of growth stabilisation, continued to improve. The Group has fully captured the development opportunities brought by the new infrastructure to continuously develop the piping systems and accelerate the development of smart pipeline networks. At the same time, the Group kept strengthening strategic partnerships with government departments, leading central government-owned enterprises and state-owned enterprises in the infrastructure sector, while proactively investing in national projects of strategic importance and urban redevelopment projects. Revenue from the plastic piping systems business amounted to RMB25,607 million, accounting for 83.2% of the Group’s total revenue. Due to the frequent COVID-19 outbreaks in the PRC which resulting a decrease in market demand, coupled with the Group’s certain production bases had to suspend production under quarantine policies, sales of the Group’s plastic pipes and pipe fittings were affected to a certain extent. During the Year, sales volume of the plastic piping systems decreased by 6.1% to 2.39 million tonnes. Despite the overall decline in sales volume of the Group, the gross profit margin increased to 27.5% due to the gradual decline in raw material prices in the second half of the year and the adoption of effective procurement strategies by the Group to actively control the costs of raw materials and manufacturing, as well as the timely adjustments to the selling prices, so as to maximise its economies of scale.

The Group has been embracing intelligentisation to conduct the upgrading of its business. Therefore, the Group has been expediting the adoption of smart manufacturing by proactively building 21 smart factories across the world that integrate “Internet of Things, smart control and automated production”. During the reporting period, the Group’s annual designed capacity for manufacturing plastic piping systems expanded from 3.20 million tonnes at the end of 2021 to 3.26 million tonnes at the end of 2022, and the actual utilisation rate during the year was approximately 74.4%. Always adhering to the green development philosophy, the Group advocates low energy consumption and high energy efficiency production and leads the industry towards green and sustainable development. During the Year, Guangdong Liansu Technology Industrial Co., Ltd., a subsidiary of the Group, was successfully selected as the 2021 National Green Factory, fully demonstrating the government’s recognition of the Group’s effort to promote green development in the industry.

The Group leveraged its edge of the principal business and continued to provide high-standard pipeline application support for large-scale agricultural farming and marine aquaculture, and expanded into various fields of agriculture with its strong technical strength and advantages of pipeline product system, which has given new impetus to the transformation and upgrading of agriculture and sustainable development of green ecology, as well as enriching the Group’s income sources and expanding its market share.

In terms of the overseas market expansion, the Group continues to expand overseas markets with a focus on the Southeast Asia. In August, phase 1 of the production base in Indonesia was officially put into operation, becoming a driving force for the Group’s accelerated development in the Southeast Asian market. The production base in Cambodia was put into operation by the end of 2022. Furthermore, the Group is steadily pushing forward with the construction of production bases in such countries as Thailand, Malaysia, Philippines and Bangladesh, while the production base in Indonesia will proceed with the construction of the Phase II.

Investment in new infrastructure has become a strong support for stabilising economic growth in the post- pandemic era, and it will continue to demonstrate emerging potential. The Group will fully grasp the market opportunities from the new infrastructure investment to expand its plastic piping systems business and keep on seeking various strategic partners to create mutual benefit and a win-win situation. The Group will continue to drive all-round development with innovation and breakthroughs, build the “benchmark factory, and promote its upgrade towards intelligentisation and greening, thereby strengthening its sustainable development capabilities.

For building materials and home improvement business, in 2022, the downward pressure remained in the PRC real estate market since 2021 and the industry faced with myriad challenges ahead, which in turn affected the business development of the building materials and home improvement industry in the PRC to a certain extent. During the Year, revenue from the Group’s building materials and home improvement business amounted to RMB2,705 million, representing 8.8% of the Group’s total revenue. As a number of large-scale private property developers were mired in financial difficulties, the Group has actively adjusted its business strategy to diversify its customer portfolio and proactively explored more infrastructure projects which were mainly undertaken by government and state-owned enterprises, thereby minimising the Group’s business risks. In addition, the Group further strengthened its relationship with premium real estate companies as its existing customers as well as vigorously explored the possibility of cross-sector collaboration with various industries, in order to bring a more stable source of income for the building materials and home improvement business. During the Year, the Group signed a strategic cooperation agreement with a B2B building materials procurement and trading platform and a well-known supply chain enterprise respectively, aiming to achieve a win-win situation of resource sharing, cost reduction and efficiency enhancement through its cooperation with different partners in various aspects.

Looking forward to 2023, it is expected that the domestic macro economy will achieve an overall improvement. The policy support is expected to further increase, thus gradual stabilisation and recovery on the real estate market is also expected to be seen. The Group will remain its focus on product quality and optimise one-stop–integrated solution and services. Meanwhile, the Group will strengthen its relationships with existing customers as well as actively explore new customers with strong capital strength to support sales growth. In addition, the Group will give full play to the synergy between the pipeline business and its building materials and home improvement business, step up the cultivation of technical  talents,  increase  investment  in  scientific  research  and  innovate  and  upgrade  eco-friendly products, expecting to restore growth of the business of building materials and home improvement products as soon as possible.

With the continuous increase of the government’s efforts in ecological environmental protection and governance, the market potential of environmental protection industry in the PRC has been expanded rapidly. Thus, the Group has been diligently developing its environmental protection business. Though COVID-19 pandemic continuously recurred in 2022, the Group’s environmental protection business recorded a revenue of RMB348 million. The Group focused on expanding the environmental protection business by securing leading enterprises as new customers in the traditional industries. In the urban service sector, the Group mainly developed the markets of key regions. In addition, the Group is committed to exploring new business development, mainly on the businesses of the treatment and operation of water environment, water ecology, and soil and mine remediation, thus aligning its development with national policies. In the future, 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, creating better conditions for its future development.

Capitalising on the national policy adjustment, the Group successfully established its presence of environmental protection business in Jiangsu, Guangdong and Hunan provinces, among which the solid waste disposal base in Foshan was officially put into operation in July, and the project of the base for comprehensive utilisation of renewable resources in processing industry in Hunan Miluo also commenced its construction at the end of July, and is expected to be put into trial operation within 2023. In future, the Group will continue to develop the Chinese market to further expand its market shares.

In term of the supply chain service platform, despite the fluctuation of global pandemic conditions, with the end of the international pandemic control and the expansion of the related businesses, in particular of the holding of Shenzhen EDA Cloud Technologies Co., Ltd., it recorded an increase in revenue. During the Year, revenue from the supply chain services platform increased by 11.9% to RMB958 million.

The Group has been adjusting its business layout and optimising its operation management. 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, with the phase 1 of these properties being ready for rental and operation. The Dubai Logistics Centre and the Auburn project in Sydney are both in the pre- operational stage, with the Group taking the lead in the Dubai Logistics Centre by adopting the rental operation contracting model, which has achieved very good results. Looking ahead, the Group plans to further expand the distribution network in Southeast Asia after taking into account the business development by driving the long-term development of such business segment.

As green and sustainable development have become a global consensus, the new energy industry has huge market potential. Therefore, the Group’s actively developed the new energy industry and announced in early January 2022 that Guangdong Lesso Banhao Photovoltaic New Energy Technology Co., Ltd. (“Lesso Banhao”) has entered into the photovoltaic industry to develop a new growth engine for the Group. During the Year, the Group successfully entered into strategic cooperation agreements with a number of state- owned enterprises and central government-owned enterprises to jointly explore the photovoltaic market. The first production line of Lesso Banhao started a trial run in April 2022 and its products were officially launched for sale in July 2022. Lesso Banhao has been gradually establishing a comprehensive production, supply and sales system with four production bases in China and Indonesia, demonstrating a strong supply capacity. Supported by the extensive sales and marketing channels of China Lesso across the PRC, Lesso Banhao has more than 500 distributors, over 1,000 stores and nearly 100 specialty stores for the sales of its photovoltaic products. The Group has also set up overseas sales centers and formed sales teams in 16 countries to expand into various overseas markets.

 As of 31 December 2022, Lesso Banhao has participated in the construction of 90 photovoltaic power station projects, of which 78 projects in the PRC and 12 projects in overseas market. Lesso Banhao has invested 16 power stations with an installed capacity of up to 12.5MW. During the Year, Lesso Banhao has recorded RMB589 million of revenue, laying a solid foundation for its future development. Though the new energy business contributes an insignificant percentage to the Group’s revenue, the management believes that with the increasing investment and policy support from the government in the new energy industry, a high growth trend in the photovoltaic industry has been formed. Therefore, Lesso Banhao will actively develop competitive production capacity and enhance its technology development capability. Furthermore, it will continue to strengthen partnership with central government-owned and state-owned power investment enterprises nationwide to explore new modes of cooperation and make every effort to build a new channel construction and marketing network for new energy business, promoting the new energy business to become a major driving force for the Group’s future revenue.