The world’s second largest and Asia’s top developer and producer of industrial aluminium extrusion products, China Zhongwang Holdings Limited (hereafter “Zhongwang”, 1333.HK) , had recently released its 2010 full year earnings, with net profit reaching RMB2.6 billion. Declines in gross profit margin and net profit were recorded as a result of the anti-dumping and countervailing duties investigations initiated by the US government. Not long ago, the US Department of Commerce released the final determinations to the investigations, removing the long hangover uncertainty. As Zhongwang has 21 sets of large-scale extrusion presses of over 75MN in the pipeline, it is ready to regain growth momentum with a strong manufacturing platform.
“Our development plans and strategies will remain unchanged despite the US anti-dumping and countervailing duties investigations. Our capacity expansion plan has been ongoing as scheduled. A total of 21 sets of large-scale extrusion presses of over 75MN will be installed at our manufacturing base in the coming two years. Recently, two sets of 75MN presses have commenced production. In addition to the 125MN extrusion press which is currently the world’s largest in operation, we will add three more sets of the same kind soon,” Mr. Vincent Cheung, CFO of Zhongwang said with confidence. As a member of the senior management team coming from Hong Kong, he had witnessed Zhongwang’s proactive efforts to hone its core competencies following the US investigations and gradually getting back on the path to recovery.
“Following the US government’s announcement of the final determinations which cleared the uncertainties surrounding exports to the US, Zhongwang will continue to focus on high-value added products with the aim to develop an even more diverse and solid customer base. The domestic PRC market will be our key focus supplemented by overseas export markets. While our business focus will remain on industrial aluminium extrusion products, we will expand into high-end aluminium flat-rolled products to form a new growth driver.” Mr. Lu Changquing, Executive Director and Vice President of Zhongwang said. “According to our five-year development plan, we will pursue our goal of becoming the world leading producer of high-end processed aluminium alloy products by reinforcing our core competitive edge for industrial aluminium products, strengthening R&D capabilities, intensifying market development efforts and expanding into high-end aluminium flat-rolled products.” Mr. Lu added.
Continual Capacity Expansion for an Industry Giant
According to industry veterans, smelting, extrusion, die design and product R&D are the four core integrated capabilities critical to industrial aluminium extrusion manufacturers. Extrusion equipment and technologies are driving towards large-scale, modernized, high precision and highly automated directions. As at the end of 2010, Zhongwang operated 73 world"s leading aluminium extrusion production lines, including a set of the world’s largest and most advanced 125 MN oil-driven dual action extrusion press. Three more production lines of the same scale will be added in the next two years. Such expansion will outstrip other market players and put Zhongwang at the industry forefront.
Back in 2003, Zhongwang mainly produced aluminium extrusion products such as door and window frames for construction use. Today, it is one of the few producers of large-section industrial aluminium extrusion products for use in the transportation, machinery and equipment, and electricity engineering sectors. Such a transformation is the fruits of Zhongwang’s continual investments in large-scale extrusion presses.
“We will continue to strengthen our hardware through equipment upgrades in 2011,” Mr. Lu said. To further increase the capabilities in producing high-end and processed products, Zhongwang has invested in 21 sets of large-scale presses ranging from 75MN to 125MN to be installed in the coming two years. Three sets of mega presses, including two sets of 225MN and 1 set of 300MN, will be added to make Zhongwang a true industry giant with production capacity and capability far outpacing any other industry player to fully capture the rising demand for high value-added large-section industrial aluminium extrusion products. Zhongwang’s plan is to increase its production capacity from the current 640 kilotons as at the end of 2010 to 1 million tons by the end of 2014.
Currently, Zhongwang is also equipped with the world’s leading tilt smelting facilities and operates Asia’s largest special industrial aluminium die design and production centre. These aluminium alloy smelting and die design facilities enable Zhongwang to deliver its Chairman Liu Zhongtian’s product differentiation strategy - “offering either unique or excellent products unmatched by any other competitor”. The integration of product development, smelting, die design, extrusion and the seamless operation of other steps of production formed the cornerstone of Zhongwang’s operations and competitive advantages, enabling it to fully satisfy the diverse needs of customers in different sectors.
Going forward, Zhongwang will continue to hone its smelting and die design strengths to offer processed aluminium products in finished or semi-finished forms. According to Mr. Lu, Zhongwang has already completed the construction of a high-speed train compartment workshop designed for production of high-speed train compartments that have been welded and processed. “These products offer higher gross margins than our extrusion products and are expected to contribute to Zhongwang’s business growth next year,” Mr. Lu added.
Our Strategy –Perseverance in Execution
Zhongwang’s 2010 earnings revealed two issues that worth noting: both Australia and the US market underwent anti-dumping and countervailing duties investigations during 2010 but Zhongwang’s performances in these markets showed differing trends. On a year-on-year basis, sales from Australia posted a robust growth of 2.5 times against a considerable decline in the US market.
In response to the impact brought forth by the US anti-dumping and countervailing duties investigations, Zhongwang is actively tapping opportunities in other markets and has adjusted its marketing strategy – on the one hand, it has stepped up its business development efforts in the domestic PRC market and strive to increase the contribution from the PRC with an increased market share; on the other hand, it continues to enhance its product mix by raising the proportion of high value-added products so as to tap opportunities in other potential markets globally.
“We will not give up the US market. According to the final determinations announced by the US government, four series of aluminium alloy extrusion products are not under the scope of the tariff levy. We will increase the production of these products and at the same time develop processed aluminium goods for exports,” Mr. Lu revealed. “The management holds a fair and objective view to the US anti-dumping issue. While such investigations have brought us short-term challenges that take time for enterprise of our scale to adjust our marketing strategy to tackle, it is not necessarily a bad thing for Zhongwang in the long run as it will sharpen our edge in risk management and prompt us to rationalize the geographical distribution of our sales.”
China has now become the world’s largest producer and consumer of aluminium extrusion products. They are widely used in the transportation sector such as rail transport for passengers and cargos, high-speed trains, metro rails, automobiles, heavy trucks, marine vessels, aerospace and aviation, as well as in machinery and equipment, electric power engineering and alternative energy sectors. The strong demand from these fields has created a favourable environment for the industry. Statistics showed that the PRC industrial aluminium extrusion market has been growing at CAGR of 25% in the past few years. In the next decade, industrial aluminium extrusion products are estimated to account for 70% of total aluminium extrusion product usage, ranking China as one of the top consumers of such products. The appealing potential of the domestic market has long caught the attention of Zhongwang to switch its focus to the PRC market which will be supplemented by other export markets.
Sales in the PRC accounted for 55% of Zhongwang’s revenue in 2010. Mr. Lu expects that the proportion will increase to over 80% in 2011 as a result of its effort to give priority to the development of the PRC market over other exports markets.
To achieve this goal, Zhongwang has stepped up its market development efforts in the PRC, in particular in the transportation, machinery and equipment and electricity power engineering sectors. Its unmatched integrated strengths have yielded encouraging results, with the signing of a number of large-scale metro rail projects including the Changchun Metro, Harbin Metro and the Chengdu Metro.
Focus on High Value-added Products to Fuel its Growth
In addition to strengthening production capacity, R&D and market development, Zhongwang is also seeking new growth drivers.
Zhongwang has been setting its eye on a new business with the exponential growth potential for over a year. The new business plan, which is a key development of Zhongwang in 2011 and going forward, was unveiled in its 2010 annual report - Zhongwang plans to leverage its current technology, customer and market resources to expand its business to the manufacture of high value-added aluminium flat-rolled products.
According to a report by the Boston Consulting Group, of a range of aluminium flat rolled products, the consumption of medium to high thickness aluminium plates alone in China is expected to grow at a CAGR of 12% from 2005-2010. China will be the largest market for such products by 2015.
Mr. Lu remarked, “All along, Zhongwang has been moving up the industry chain to high value-added products, first from construction aluminium extrusion products to industrial products, now to flat-rolled products and processed finished goods which have already started exporting to the US. These transformations are centered towards one mission – to fuel Zhongwang’s growth with high value-added products.” ”
Aluminium flat rolled products, mainly consisting of medium-to-high thickness plates, high-end foils and sheets, are widely applied in aerospace and aviation, marine vessels, rail transport, metallurgy, machinery, packaging and electronics sectors. The production of these high-end products requires advanced technology and in return offers higher profit margins. Even more attractive is the enormous market potential – China alone imports 600 kilotons of such products a year to satisfy its needs. Meanwhile, global economic recovery has also drive the demand and applications of aluminium alloy plates, leading to a widening gap between demand and industry capacity. The rising demand internationally offered Zhongwang a golden opportunity to capitalize on export opportunities. Expansion into high value-added product category enabled Chinese manufacturers counter the negative impact of the anti-dumping and countervailing duties levied on Chinese exports.
Entering this new business will not only allow Zhongwang to leverage its existing technological edge in smelting and product development, but it will also enable it to leverage its strong customer and market resources in downstream applications to generate synergistic benefits with its existing business.
Zhongwang’s strategy to strengthen it production capabilities with the introduction of advanced equipment, the development of high-end products and processed finished goods via technological advancement, and intensifying marketing efforts to tap opportunities in both domestic and overseas markets have laid a solid ground for it to grow and prosper.
About China Zhongwang Holdings Limited
China Zhongwang is the largest industrial aluminum extrusion product developer and manufacturer in Asia and China, with a particular focus on the transportation, machinery equipment and electric power engineering sectors. According to the Boston Consulting Group, China Zhongwang is the world’s second largest manufacturer of industrial aluminium extrusion products by production capacity. As at the end of 2010, its production capacity reached 640 kilotons a year. It possessed 73 extrusion production lines, including a 125MN oil-driven dual action extrusion press which is currently the largest of its kind in China and one of the most advanced in the world. These facilities enable the Company to produce large-section and high-precision industrial aluminium extrusion products tailored to its customers’ needs. These products are widely used in the transportation sector such as cargo and passenger carriages, metropolitan railway, aviation, vessels, automobiles, as well as machinery equipment and electric power engineering sectors.
