Yip’s Chemical Announces 2019 Interim Results Profit Attributable to Owners Slightly Increases Pursuit of High Quality Sales Begins to Bear Fruit

(Hong Kong, 23 August 2019) ─ Yip’s Chemical Holdings Limited (SEHK: 00408) (“Yip’s Chemical” or the “Group”) announced today its interim results for the six months ended 30 June 2019 (“review period”).

During the review period, the Group faced a challenging operating environment with the Sino-US trade war escalating, geopolitical conflicts and the RMB exchange rate fluctuating. Nevertheless, the Group adjusted its strategies timely and sought change while maintaining stability. During the period, the overall sales volume dropped slightly by 4% to 628,000 metric tons and sales revenue was down 19.7% to HK$4.94 billion, and that an exchange loss of about HK$5 million was incurred in profit or loss because of RMB depreciation. However, with the Group’s strategy of focusing on quality sales and cost control, profit attributable to owners increased by 1.3% year-on-year to HK$88 million. The Group was also able to improve the use of working capital during the period and lowered its gearing ratio to 47.6%, a significant drop of 18.6 percentage points when compared with the same period last year. The Board resolved to declare an interim dividend of HK7 cents per share (same period in 2018: HK6 cents per share), in line with the Group’s prevailing dividend payout policy aiming to reward shareholders.

Mr. Tony Ip, Chairman of Yip’s Chemical, said, “Although sales of the Group dropped during the period, net profit grew, owing much to our efforts in optimising profit quality and controlling costs. Moreover, we have promptly adjusted our business strategies to respond to the Chinese Government’s policies to stimulate domestic demand. We will focus on sectors, such as construction and automobile, which boost domestic consumption. We will also pay greater efforts on product R&D and marketing, with the hope of cementing and enlarging the Group’s market share.”

Business Review and Outlook

During the review period, the Group sold 504,000 metric tons of solvents, down slightly by 3% against the same period last year. Affected by the marked fall in raw material prices, the unit prices dropped and in turn sales revenue and gross profit margin of the solvents segment fell by 22% and 1.2 percentage points respectively. Operating profit of the segment declined to HK$102 million.

The Group believed the fluctuation of raw material prices in the first half of 2019 was temporary, and considered the overall operating environment to be stable. As the prices of various raw materials have stopped falling and rebounded since June, and with the traditional peak season approaching, the Group expects the operating profit of the segment to improve in the second half of the year. The new 550,000-metric ton expansion project at its Taixing plant in Jiangsu Province has been completed and is expected to put on stream in the third quarter this year.

Coatings and Inks
Performance of the coatings and inks businesses achieved a significant improvement in the first half of 2019. Notwithstanding the drop in sales revenue of 14% and 15% respectively, both businesses still saw gross profit margin growth of five percentage points. The coatings segment turned around with an operating profit of HK$33.7 million, while operating profit of the inks segment surged fourfold to approximately HK$50.9 million.

Improvement of the two business segments was mainly attributable to the Group’s proven strategy to pursue quality sales and cultivate quality customers. At the same time, the Group managed to reduce operating costs substantially and achieved for the coatings and inks businesses a year-on-year drop of 15% and 19% respectively in operating expenses. The decline in raw material costs also helped enhance gross profit margin of the businesses. The Group will continue to consolidate and enhance the satisfactory results of the two business segments and strive for quality sales, as well as seek to fully utilize the production capacity, thereby creating favourable conditions to boost their revenue.

Although sales revenue of the lubricants business declined during the review period, the business recorded an operating profit of HK$6.78 million, thanks to the improved quality of the business and substantial reduction of operating costs. The segment will focus on automobile lubricants market to drive growth through the well-established sales network.

During the period, revenue of the segment was HK$5.56 million and operating profit was down to HK$1.54 million. That was mainly attributable to the gain of HK$28 million from disposal of the resin plant premises in the last corresponding period, lower increment in the fair values of investment properties when compared with the last period and the initial expenses incurred in relation to disposal of the Qingpu property during the review period. Upon restructuring the Group’s R&D function and delegating it to each core business segment, the Group’s R&D Centre in Zhangjiang, Shanghai was open for leasing. During the period, half of the property was leased out and the Group also entered into a leasing agreement for the remaining half in August this year.

Investment in Damai
The Group has ventured into the automobile repair and maintenance market in recent years. Being optimistic about the market’s prospects, the Group has continued to increase its investment in Damai, a car maintenance chain brand in Mainland China by injecting an additional RMB30 million at the beginning of the year to increase its shareholding to 39%. The investment was made to support Damai in developing its car maintenance chain business across the country. As at 30 June 2019, Damai had 67 stores in Mainland China covering Shandong, Jiangsu, Guangdong and Hunan. It will continue to expand its store network in the country, including cities in the Greater Bay Area in Guangdong.

Mr. Stephen Yip, Deputy Chairman and Chief Executive Officer of Yip’s Chemical, concluded, “Impacted by the uncertain external economic environment and the Sino-US trade war, the Chinese economy is trending down. Fortunately, the Group has the foresight to adjust its strategies, aiming for advancement in steady strides, which have started bearing fruit. Looking ahead, we will continue to take proven measures, including pushing for quality sales, investing with prudence and reducing borrowings, plus continuing to run our businesses upholding our ‘environmentally friendly’, ‘end-user focused’ and ‘service-oriented’ operating principles. Although we expect the operating environment to remain difficult in the second half of the year, we believe, as the quality of our operations and our profitability continues to lift up, coupled with the advent of the traditional peak season, our overall performance in the second half of the year will continue to improve.”