China Rongsheng profit up 32.0% to RMB1.72bn

The company targets expansion as it strengthens its leadership in shipbuilding industry while actively develops offshore engineering market.

China Rongsheng Heavy Industries Group Holdings Limited (“Rongsheng”), a large heavy industries group in China, on Tuesday announced its audited results for the year ended 31 December 2010, its first results after its initial public offering.

In 2010, the Group’s revenue surged 33.7% from RMB9.47 billion in 2009 to RMB12.67 billion in 2010. Earnings attributable to the equity holders of the company was RMB1.72 billion, an increase of 32.0% over the previous year. Combined gross margin rose from 19.5% in 2009 to 22.4% in 2010, according to a China Rongsheng report.

Mr. Chen Qiang, Chief Executive Officer and Executive Director of Rongsheng, said, “Earnings attributable to the equity holders of the company for the whole year in 2010 was RMB1.72 billion, exceeding 6.7% when compared with the estimated profit of RMB1.61 billion as stated in the prospectus. I believe these excellent results serve as the best reward for our shareholders and proof of the validity of our business model. In just five years after establishment, we have already become the second largest shipbuilder and the largest privately-owned shipbuilder in the PRC. We own the largest shipyard in the PRC and are also a global market leader in the manufacture of VLOCs exceeding 300,000 DWT. These attributes reflect our strong capability and growth potential. Looking ahead, benefiting from the steady growth in market demand and further expansion in the Group’s scale of operations and business sectors, we are confident of achieving even stronger growth in the future. As a token of appreciation for the investors’ support, the Board recommended a final dividend of RMB6.8 cents per share.”

Shipbuilding
Shipbuilding is the Group’s core business segment, and also its main revenue resource. As the global economy continues to recover, world trade and the shipbuilding market are also more active. In 2010, the three major indices of China’s shipbuilding industry including shipbuilding output, total volume of new orders received and total volume of orders on hand were all ranked first globally, all accounting for more than 40% of the global total. The favorable market environment added impetus to the Group’s revenue from the shipbuilding segment as it increased by 28.9% to RMB11.84 billion with new orders for 46 vessels. As at 31 December 2010, the Group’s total orders on hand was 91 vessels, representing a contract value of RMB6.27 billion. We ranked first among privately-owned Chinese shipbuilders in terms of new orders and orders on hand measured by DWT for the year 2010.

The enlarged production capacity, advanced technology and production control system has enhanced the Group’s shipbuilding capability. In addition, the Group proactively enhanced technology, optimized existing vessels, and initiated the research and development of new vessels. The Group also developed a new more efficient model of Suezmax tanker of 157,000 DWT, also exceeding the capacity of the 156,000 DWT older model. Currently, Rongsheng’s Suezmax tankers rank second globally, and its very large ore carriers (“VLOCs”) rank first in the world.

Offshore Engineering
In 2010, the Group’s revenue from the offshore engineering segment surged 60.9%. The Group has entered strategic cooperation with China National Offshore Oil Corporation (CNOOC), and the 3,000-meter deepwater pipe-laying Crane Vessel (DPV) “Ocean Pec 201” which the Group has been constructing, has already been un-docked and will be delivered soon. The Group’s fourth drydock, which is the largest drydock for offshore engineering projects approved by the National Development and Reform Commission (NDRC), has been put in trial operation since January 2011. The Group’s production efficiency will be further enhanced upon completion of additional facilities.

Riding on the domestic demand for offshore engineering equipment, the Group proactively undertook the technical preparation. Upon completion of the “Ocean Pec 201”, the Group further strengthened its design and construction capacities of offshore engineering. In addition, the Group undertook the production design of the 3,000-meter semi-submersible drilling platform through importing basic designs, in an aim to capture the opportunities brought by China’s “South China Sea Exploration Strategy”, to provide the top three state-owned petroleum companies with deep ocean exploration equipment, and to lay a solid foundation for developing the international market in the future.

Marine Engine Building
With the support of the aggregate orders from its shipbuilding segment, the Group’s marine engine segment has been growing rapidly. In 2010, the Group achieved 55 orders for marine diesel engines of which 19 were external orders. As at 31 December 2010, the Group’s order book of 53marine diesel engines amounted to 1,111,437 horsepower with a total contract value of RMB1.95 billion. At present, the Group’s marine diesel engines are mainly supplied to its shipbuilding segment.

During the year, the Group completed the production of three models. The 7RT-flex82T marine diesel engine, the first of its kind in China, delivered a breakthrough in technology and production capacity. In future, we will carry on the development and production of the electronically controlled diesel engine.

Engineering Machinery
The Group entered the engineering machinery segment in 2010. Benefiting from the global recovery and thriving domestic demand, the segment achieved revenue of RMB330 million. To further develop the engineering machinery business, the Group’s sales model changed from out of province direct selling to distribution. The Group also collaborated with financial institutions. For product research and development, the Group accomplished two rounds of upgrade for various old models, and is currently undertaking a third round. The construction design of the fourth model has also finished, and these new models have entered into the testing phase.

Business Prospects
The rapid growth of China’s shipping industry and export, recovery of the global economy, as well as the cost advantage and policy support to shipbuilding industry are the critical factors that determine the future development of China’s shipbuilding industry.

Leveraging the Group’s abundant experience in shipbuilding, Rongsheng expects its shipbuilding segment will continue to expand steadily in future.

Against the backdrop of increasing oil demand and prices, the percentage of offshore oil in total oil consumption is expected to continue to grow, contributing to the growth of demand for offshore engineering equipment.

Meanwhile, the Chinese government has included offshore engineering as a key industry in the 12th Five-Year plan. With a primary aim of serving the expanding energy sector, the Group will continue to expand its offshore engineering business.

The strong demand from China’s domestic shipbuilding industry, coupled with ever-increasing overseas demand, will create momentum towards continuous growth in the Group’s marine engine [building] segment. Currently, the Group has started cooperation with MAN in dual-fuel diesel engines which can provide its marine engine segment with an outstanding market opportunity. Based on its technical advantages and outstanding performances, its marine engine segment will obtain the opportunity in dual-fuel marine diesel engine market.

The continuous process of urbanization and investment in infrastructure including the development of railways and highways will create enormous opportunities for the engineering machinery market. The Group plans to expand the production capacity of excavators, enlarge its marketing network, and extend its product line into high value-added area, in order to increase the market share of its business.