Sinoref Holdings profit drops 22% to RMB54.6mn

The group actively expands local and overseas customer base in preparation of its new production line launching.

Sinoref Holdings Limited (“Sinoref”), a leading manufacturer of advanced steel flow control products in China, on Wednesday announced its unaudited interim results for the six months ended 30 June 2011.

The first half of 2011 had been a challenging period for the steel industry in China. According to the recent statistics released by China Steel Association, China’s average daily crude steel output reached 2.02 million tonnes in late June, which was the first time it exceeded 2 million tonnes.

Although the country’s production of crude steel reached approximately 350 million tonnes, or an increase of 9.6% in comparison to the corresponding period of the previous year, and the utilization rate of production facilities was over 90%, raw materials price surged. Prices of local iron ores and Indian ores had increased by 19% and 16.9% respectively over the corresponding period of last year while the price of coke had increased by 3%. As a result, many large steel manufacturers experienced notable decreases in profit, or even losses.

In respect of the aforementioned operating environment, the turnover and net profit of Sinoref in the first half year was RMB167 million and RMB54.6 million respectively, representing a decrease of 4.3% and 22.1% respectively over the same period of last year. The sales volume was approximately 4,500 tonnes, representing an increase of 7.7%. Net profit margin and gross profit margin was 32.7% and 59.3% respectively. The drop in turnover and gross profit margin was attributed to the surge in raw material costs and the decrease in the average selling price. In order to maintain long-term cooperative relations with customers, the Group did not make upward adjustments in the price of its product, and even strategically reduced the price to enhance market penetration. During the period under review, basic earnings per share was RMB0.05.

As at 30 June 2011, bank balances and cash amounted to approximately RMB267 million (As at 31 Dec 2010: RMB 316 million). Total equity was RMB497 million (As at 31 Dec 2010: RMB470 million).

Mr. Xu Yejun, Chairman and CEO of the Group, said, “The overall environment of the steel industry in the first half of 2011 was unfavorable, featuring high raw material prices, excess supply and inventory, drop in export volume and measures limiting electrical supply that placed pressure on profits for all industry players. To support our customers through their hardships, we have decided to not passing on the raising raw material costs for the time being. Instead, we were able to maintain our results at an optimistic level, with increased efficiency and continuous hard work of everyone in the entire Group. During the period, our overall sales volume increased by approximately 7.7% to 4,499 tonnes. We have maintained our position as the second largest advanced steel flow control product supplier in China with a market share of about 30%. In addition, the Group was selected by Morgan Stanley Capital International as a constituent stock of the MSCI China Small Cap Index Series in May 2011. We were duly honored by this and believed that it will enhance the Group’s reputation and position in the international capital market. We will continue to enhance our competitiveness with the aim of becoming a leader in the advanced steel flow control products industry.”

With regards to expanding production capacity, in order to capture the opportunities brought by the increasing market demand, Sinoref imported a new production line from Germany and has been undergoing construction since late 2010. This production line will be installed in the new factory in Jiangsu, site of the Group’s headquarter. According to the current progress, the installation of the new production line is scheduled to complete in the third quarter of this year, and trial runs will subsequently commence. The production line is expected to generate profit for the Group starting from the fourth quarter of this year. Once fully operational, an additional 8,600 tonnes will be added to the Group’s production capacity, raising its total annual output of steel flow control products to 16,800 tonnes.

Mr. Xu concluded, “In this July, the Ministry of Industry and Information Technology of the PRC stated that it would seek to eliminate laggard capacity among 18 industries by the end of 2011. It is expected the consolidation of the steel industry will facilitate growth of the high-end market, as well as consumption of advanced steel flow control products, which will benefit manufacturers like Sinoref who focus on the high-end market in the long run. Looking ahead, in addition to solidifying our already strong customer relations through supporting them as they get through the hard times, we will actively expand our customer base, in preparation for the commence of the new production line. Furthermore, the Group is committed to continuous innovation, and strives to maintain its industry leading technological expertise, while actively develop domestic and overseas markets and explore further growth opportunities. Despite the adversity in the iron and steel industry, we are still optimistic about the future in the middle-to-long run, seeing the current business progress of the Group as well as the implementation of government policies to the iron and steel industry which are beneficial to the high-end steel flow control product market. We will give our absolute best to generate optimal returns for our shareholders.”