Takes Advantage of Industry Consolidation to Capture Additional Market Shares
Forms Strategic Alliance to Develop Titanium Alloy Business
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Financial Highlights
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HONG KONG, Aug. 26, 2016 /PRNewswire/ -- Tiangong International Company Limited ("Tiangong International" or the "Group"; Stock Code: 826.HK), China's largest high-speed steel (HSS) and a leading HSS cutting tools and die steel manufacturer, today announced its unaudited consolidated interim results for the six months ended 30 June 2016 ("1H 2016", the "Period" or the "Reporting Period").
In 1H 2016, China's economic growth remained steady. Despite the continuous sluggish demand of iron and steel products during the Period, the Group started to recover from the troughs since 2H 2015; the average selling prices of the products rebounded from the bottom. During the Reporting Period, total revenue reached approximately RMB1,568 million, representing a p-o-p decrease of 15.6%. Revenue from the Group's key business segments fell 16.8% p-o-p to RMB1,077 million, while gross profit dropped 17.2% p-o-p to RMB187 million. Profit attributable to shareholders dropped by approximately 57.5% p-o-p to RMB25.71 million. Basic earnings per share was RMB0.012.
Mr. Zhu Xiaokun, Chairman of Tiangong International, said, "In face of the new economic conditions, and the sever market conditions that the iron and steel industry is facing, Tiangong International is presented with both challenges and opportunities. To remain competitive within this environment, the Group continued to focus on high-end products development and cost savings strategy. Looking back to the first half of this year, the Group's die steel sheet plant commenced production and also successfully developed and produced the high speed carbide cutter and countersink dagger drill. The high speed carbide cutter has been applied for national patent approval, laying a strong foundation for the sale of hard alloy products going forward. During the Reporting Period, the Group obtained 7 invention patents and 9 utility model patent, increasing the Group's total number of effective patents to 139, reflecting the Group's capabilities in technology, R&D and innovation. The Group also actively brought forward various major project constructions. Tiangong Technology Building combining R&D, assessment facilities and office premise has commenced construction, which is expected to complete in the beginning of 2017."
The die steel operation continued to be the largest contributor to Group revenue during the Reporting Period, accounting for 34.1% of total revenue. Revenue generated from die steel increased by 0.7% to RMB534 million compared to RMB530 million in 1H 2015. As a result of the cleaning up of some zombie corporations, the Group managed to capture additional market shares in the die steel market contributing to an increase in domestic revenue by 3.5% from RMB216 million in 1H 2015 to RMB223 million in the Reporting Period. On the other hand, the effort devoted in the expansion of overseas markets overcame the decrease in the average selling price. As a result, the Group's export revenue remained stable at RMB310 million.
During the Reporting Period, demand and average selling price of HSS remained subdued in both domestic and overseas markets, causing the Group's revenue of HSS to decrease by 43.0% from RMB363 million in 1H 2015 to RMB207 million. Domestic and export revenue recorded a decrease of 47.0% and 32.9% to RMB138 million and RMB68.43 million, respectively.
Throughout the trough and recovery period, the price of HSS cutting tools was relatively stable. In 1H 2016, a decrease in the market demand of HSS caused the Group's revenue in this segment to fall from RMB304 million in 1H 2015 to RMB238 million in the Reporting Period. However, due to the sales mix in 1H 2016 which included more higher-quality products with higher average selling price, the gross margin of HSS cutting tools increased from 15.5% in 1H 2015 to 16.8% in 1H 2016.
With the proactive effort to develop the titanium alloy business, revenue of this segment increased 1.1% p-o-p to RMB98.41 million. Such achievement was mainly driven by the Group's active development in a wider range of titanium alloy products. Revenue generated from the titanium alloy segment also accounted for 6.3% of the Group's total revenue compared to 5.2% in 1H 2015. Benefiting from the decrease in the price of a major raw material, sponge titanium, the gross margin of titanium alloy increased from 12.6% in 1H 2015 to 13.7% in 1H 2016. The Group actively sought for appropriate cooperation opportunities to expand the operation of the titanium alloy segment. During the Reporting Period, TG Tech, a non-wholly owned subsidiary of the Company, entered a strategic partnership with Nanjing Iron & Steel Co., Ltd., which the latter will provide technology and funding for the essential development of the titanium alloy segment of the Group.
Looking forward to the second half of 2016, the sharp rebound in steel price in the PRC in April caused an increase in the average selling price of steel by 26% in the second quarter. As the strong demand or seasonal demand in the market is released gradually, it is expected that the third quarter of the year will be the best season for the commencement of construction works. In addition, as the Government may introduce a series of new fiscal policies to boost domestic economy, including the acceleration of domestic infrastructure investments which will eventually drive the demand of iron and steel, benefitting domestic iron and steel manufacturers of a strong recovery. Meanwhile, the stringent control in environmental protection by the government which will cause some steel enterprises to reduce production, which will result in a stable and healthy development in the PRC's steel market.
Mr. Zhu Xiaokun concluded for the Group's future development, "Given that the average selling prices of the products have rebounded from the bottom, in 2H 2016, the Group will step up its investments in strengthening internal resources, including high-end product development, downstream process extension, production process automation, research and development of new production technology, second-tier staff development and environmental protection enhancement in the second half of 2016. The Group also granted share options to employees of the Company in July to encourage and share with them the fruits of our business development. Moreover, the Group will seek appropriate partnership to develop sales channel on e-commerce platform, so as to gain additional channel in sales and marketing operation. Tiangong International will continue to place top priority on maximizing value for shareholders and following the highest standards of corporate governance."
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About Tiangong International Company Limited
Tiangong International, (the "Group"; Stock Code: 826.HK), headquartered in Danyang City, Jiangsu Province, is China's largest manufacturer of high-speed steel (HSS) and the leading manufacturer of HSS cutting tools and die steel. It is also engaged in the production of titanium alloy. HSS and die steel belong to the special steel category. Due to its diversity and specialized nature, it is widely used in various industries domestically and overseas, including machinery and equipment manufacturing, vehicle production, railway and the petrochemicals industry. Meanwhile, high-speed steel cutting tools and titanium alloy have wide applications in different sectors, including aerospace, automotive, machinery, electronics, petrochemical processing and other areas such as construction, decoration, agriculture and domestic use.
For enquiries:
Ms. Beatrice Wong / Ms. Irene Gao
Hill+Knowlton Strategies Asia
Tel: (852) 2894-6373 / 2894-6312
Email: TiangongH+K@hkstrategies.com
