Yip’s Chemical Announces 2019 Annual Results Profit Attributable to Owners Increases to HK$273 million Total Dividend Payout Increases to HK20 Cents Per Share
30.03.2020

Yip’s Chemical Holdings Limited(SEHK: 00408) (“Yip’s Chemical” or the “Group”) announced its annual results for the year ended 31 December 2019 (“the year under review”).

During the year under review, the performance of the Group’s core businesses improved significantly, and profit attributable to ownersrose 47.7% year-on-year to HK$273 million. Sales revenue for the whole year was HK$10.46 billion while sales volume was 1.38 million metric tons, down 15.5% and 1% year-on-year respectively, mainly due to the Group’s pursuit of high-quality sales and the decline in solvent unit selling prices during the year under review. The Group maintained prudent financial management, tightened credit control measures and constantly optimised the use of working capital, thus lowering the overall gearing ratio substantially by 13 percentage points year-on-year to 33%. The Board recommended payment of a final dividend of HK13 cents per share (same period in 2018: HK10 cents), bringing the total dividend payment for the year to HK20 cents per share, representing an increase of HK4 cents year-on-year.

Mr. Ip Chi Shing, Chairman of Yip’s Chemical, said, “The overall operating environment in 2019 was still full of challenges. Trade protectionism rekindled globally.There were escalating geopolitical shocks and economic slowdown. China’s economy was impacted by the Sino-US trade tension, and saw increasing downward pressure on economic growth. Nevertheless, the Group continued to consolidate its core businesses, and achieved satisfying progress in cost control, customer quality, and assets revitalization. As a result, the performance of its core businesses have greatly improved asthe business segments that recorded a loss in the preceding year had turned around and become profitable. The Group will continue to entrench the achievements of business quality optimisation in 2019 so that the foundation of all core business segments will be further reinforced to take on larger market shares.”

Business Review and Outlook

Solvents

During the year under review, thesales volume of the solvents business reached 1.12 million metric tons, representing a slight decrease of 1% year-on-year. Due to a significant reduction in the price of raw materials, which led to a decline in the unit selling prices, the sales revenue of this segmentfell by 17% to HK$7.4 billion. Operating profit fell by 19.4% year-on-year to HK$278 million. Export remained buoyant, and the export volume for the whole year maintained a similar level as that in the preceding year.

In order to fulfill more stringent requirements in environmentally friendly production, the Group’s two factories in Eastern China and Southern China have switched to usingpiped steam from the industrial park network and natural gas boiler respectively,which increased theproduction cost for steam as an energy source by approximately HK$50 million duringthe year under review.

The new production lines in the Taixing plant in Eastern China successfully commenced operation in the third quarter in 2019. The plant’s total production capacity reached around one million metric tons, becoming the world’s largest acetates production plant. For the long-term development of solvents business in Southern China, the Group has confirmed Gaolan Port, Zhuhai as the site of the new production base. The management aims to begin construction this year and to commence production by end of 2021. The Gaolan Port in Zhuhai is one of the most developed industrial areas in Southern China with comprehensive facilities and equipment. Adjacent to a large port, it possesses competitive advantages in logistics and could provide steam at a competitive cost. The completion of the new base will strengthen the competitiveness of the Group’s solvents segment.

Coatings

The coatings business underwent various reformsand achieved remarkable results in the year under review. Although sales revenuedecreased by 12% year-on-year to HK$1.61 billion due to the reduction of sales with lower profitability, gross profit margin was up 5 percentage points year-on-year, thanks to the effective cost control measures to reduce procurement costs of raw materials. Meanwhile, operations have become more efficient through the integration of the supply chain, resulting in a significant reduction in operating expenses. The operating profit turned to a gain, increasing sharply to HK$56.6 million.

The Group will continue to capitalise on the core competitiveness of the industrial coatings business in technology and manufacturing to bolster profitability in this business line. In addition, in order to enhance the brand influence of the architectural coatings business, the Group is repositioning its “Bauhinia” brand, and will devote resources to tailor make products and marketing strategies to augment the new brand positioning, promoting the long-term development of the coatings business.

Inks

The inks business consistently set quality sales as its top priority. It carried out systematic improvements in its customer structure and product lines, which led to a reduction in sales revenue by 9% year-on-year to HK$1.34 billion, while gross profit margin rose by 4 percentage points. The operating profit of the inks business increased significantly to HK$93.8 million, representing a year-on-year increase of nearly 1.4 times. This was mainly due to the proper control of operating costs and the integration of production from three plants to two plants, which resulted in a total reduction of approximatelyHK$26 million in various expenses.

In terms of sales and marketing, the Group will continue to expand quality sales and save operating expenses. In order to broaden revenue sources, the Group will pay additional efforts in expanding industrial inks applied on furniture and at home to seize market opportunities as well as expand its market share.

Lubricants

The Group continued to focus on automotive lubricants and the sales proportion of medium-to-high end products has increased by cooperating closely with distributors in existing sales channels. Although the sales revenue of lubricants business fell by 25% to HK$204 million, the gross profit margin increased remarkablyby 6 percentage points year-on-year due to the reduced procurement costs. Coupled with a strong uplift in operating efficiency and cost structure, operating profit reached HK$6.4 million, turning around the loss-making position that lasted for years.The Group will open up undeveloped markets, expand the automotive lubricant distributorship networkand further improve the supply chain system to raise efficiency and reduce inventory. It is expected that the lubricants business will continue to develop steadily.

Properties

Revenue from the properties segment rose 28% to HK$14 million in the year under review. Operating profit was up 1% year-on-year to HK$140 million. This was mainly contributed by the letting of the R&D Centre in Zhangjiang, Shanghai, and the increase in rental income from the former headquarters building in Fanling, Hong Kong. In addition, the sale of the Qingpu property in Shanghai has generated a gain before tax of HK$156 million, a level comparable to the increase in the fair value of properties combined with the earnings from the sale of a Huizhou plant site last year.

Investment in Damai

While striving to become more environmentally-friendly, end-user oriented and service oriented, the Group is actively pursuing “household” and “automobile” related business opportunities. Since investing strategically in Damai, the Group has generated effective synergies with Damai’s founding team in capturing opportunities in the car service market. The Group further invested in Damai in the first quarter of 2020, increasing its shareholding in Damai to 61% and becoming the largest single controlling shareholder. During the year under review, Damai boasted an additional 29 shops, reaching a total of 85 in its nationwide network that covers Shandong, Guangdong, Jiangsu, Hunan and Hebei, serving close to 200,000 cars. The Group has full confidence in Damai’s founding team and will continue to support the team in expanding the shop network in the form of chain stores. The number of stores is expected to reach more than 150 this year.

Mr. Yip Tsz Hin, Chief Executive Officer of Yip’s Chemical, concluded, “Having undergone three years of business consolidation, we achieved the intended effects, and our core businesses became healthier and more stable. The Group will striveto start the construction of the new plant in Southern Chinaand reinforce the stable profit of the solvents business; increase marketing efforts and expand sales of the coatings and inks businesses. At the same time, the Group will control operating expenses in a prudent manner; provide more support to Damai on store opening, accelerating its scale effect. The Group is unwavering on the road to realise our vision of ‘Towards a Century of Revered Leadership’.Riding on the solid foundation of our core businesses, we will devote more resources and capital to expand new businesses related to our existing portfolio, so as to diversify our business and achieve better returns for the Group and its shareholders. We have been closely monitoring the Coronavirus Disease 2019 outbreak since early this year. The Group has adopted a series of measures to contain the pandemic and ensure smooth production. We will continue to monitor the pandemic and perform better risk management, so as to minimise the impact the pandemic might bring.”