The world’s second largest developer and manufacturer of aluminium extrusion products and the largest in Asia and China - China Zhongwang (01333) had its debut share listing on the Stock Exchange of Hong Kong in 2009. Thanks to the rapid economic development in China, the aluminium extrusion industry once flourished with highly impressive performance. Then came the global financial crisis but China Zhongwang was agile enough to remain intact. Nevertheless, the Company was tumbled by the US anti-dumping and countervailing duties investigations which had an impact on its export sales. In a recent interview, Mr. Lu Changqing, Executive Director and Vice President of China Zhongwang, revealed that Chairman of the Company Mr. Liu Zhongtian, has already formulated three strategies to accelerate the Company’s pace of growth and to strengthen the cornerstones to pave the way for even more solid operational excellence.
Turning to mid- to high-end products segments
Mr. Lu said the first and foremost strategy of China Zhongwang was turning to mid- to high-end products. This has already led to an increase in the Company’s US exports. As the anti-dumping and countervailing duties investigations meant an end to the export of low-end products, China Zhongwang started paving the way for the upgrading of its product mix as early as in the second half of 2010. “Of the eight series of aluminium alloy products exported to the US, series 2, 4, 5 and 7 are mid- to high-end products that are not subject to the US investigations. China Zhongwang has increased the export of these products and expects to see notable improvements next year. In fact, exports had started picking-up since the beginning of this year,” Lu said.
In addition to the export of aluminium extrusion products, China Zhongwang has commenced the export of processed aluminium products that have been welded into finished or semi-finished goods. These include train compartments for high-speed trains, pallets, amongst others, that enjoy higher gross margins. Mr. Vincent Cheung, CFO of China Zhongwang, added, “Processed aluminium products have higher gross margins and the market demand for these products has been strong. Demand for aluminium pallets in the US, for instance, reached 300 kilotons per annum. China Zhongwang has already commenced the production and export of these pallets to the US as they are not within the scope of anti-dumping and countervailing duties investigations. The market potential for processed aluminium products is enormous.”
China Zhongwang’s export business has showed signs of improvements. Mr. Lu added that the Company is walking out of the trough. “We will not give up the export markets,” he reiterated.
Tapping opportunities in the domestic market
The second key strategy of China Zhongwang is to increase its share in the domestic market. Mr. Lu commented, “It’s our pre-set strategy to tap opportunities in the domestic PRC market, it’s just that we have accelerated the pace since the second half of last year. China Zhongwang has signed up a number of new customers since the end of last year. Stated-owned enterprises under the Central Government now accounted for 70% of the new clients signed. They come from a diverse background covering the transportation, electric power engineering, electronic machineries sectors and etc.”
China Zhongwang’s market share in the PRC almost doubled from 7% last year to 12% currently. Mr. Cheung said the Company’s current production capacity was over 600 kilotons and it will increase by 100 kilotons a year to 700 kilotons by the end of this year. With the installation of 18 sets of new large-scale extrusion presses in the pipeline, the Company’s production capacity is expected to reach 1 million tons by the end of 2013, making it the world’s top industrial aluminium producer by then.
Unique differentiation strategy to enter the high-end aluminium flat rolled product segment
The third strategy that China Zhongwang has in place is to expand into the mid- to high-end aluminium flat rolled business which is expected to commence production in 2014. Mr. Lu showed high confidence in the development of this new business and said, “Currently we do not see any competitor to this new business as Chinese enterprises do not possess the technology for producing the aluminium flat rolled products that we plan to engage in. The gross margin of these flat rolled products are higher that any of our current product offering.”
He commented that as the manufacturing facilities, research and development capabilities as well as talent pools in China are not as advanced and strong as in developed countries, China imported approximately 600 kilotons of mid- to high-end aluminium flat rolled products every year. “This is the primary market that we will enter. The mid- to high-end aluminium flat rolled products are priced at about RMB60,000/ton, making it more profitable than extrusion products,” he added. According to China Zhongwang’s expansion plan, it will establish a production base in three phases with a capacity of approximately 3 million tons a year. Phase 1 is expected to commence pilot production in 2013, while the entire production base will be ready in 2017-2018.
“The management has confidence in China Zhongwang’s future development and wants to buy shares of the Company. Chairman Liu has been purchasing shares on the market, thereby increasing his stake to over 74%. As the Company has to maintain a public float of 25%, we cannot increase our stake even if we wanted to,” Mr. Lu said.
