Yip's Chemical Holdings 0408

[winston]

Coating products power Yip's by Beth Ye, The Standard HK

Yip's Chemical Holdings (0408) said net profit grew 44 percent to HK$228 million for the six months ended September 30, as demand for its coating products increased.

The company declared an interim dividend of 12 HK cents per share - 50 percent higher than a year earlier. It said its dividend payout ratio for its 40th anniversary in 2011 will be higher than the current average of 40-60 percent.

Turnover fell 13 percent to HK$2.7 billion. Chairman Tony Ip Chi-shing attributed the drop to a "general decline in unit selling prices" although sales volume actually grew 12 percent.

Gross profit margin rose 9 percent to 25 percent in the first half.

Chief executive Kenny Wong Kam- yim said its 120,000-tonne acetate solvents production facility in Taixing will be completed by the end of the year, taking total capacity to 430,000 tonnes and making the company the world's largest acetate solvents producer.

The operating profit of two core businesses - solvents and coatings - rose by 6 percent and 129 percent respectively, because of rising sales in the mainland.

But lubricants recorded an operating loss of HK$522,000, compared with a profit of HK$7.5 million a year ago.

However, Ip said the company has no plans to sell the business and would keep it as a small-profit contributor.

Director and chief financial officer George Ng Siu-ping said Yip's plans capital expenditure of HK$160 million for 2010-2011 to expand its sales market in the mainland.

He said the company has cash on hand of HK$155 million as of September 30, down from HK$369 million at the end of March.

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[winston]

Not vested.

Painting a bright future by Mandy Lo and Beth Ye, The Standard HK:-

Solvent and coating paintmaker Yips Chemical (0408) is eyeing expansion into water-based paint products as the mainland's property sector continues to register strong growth.

In a bid to make its Bauhinia Paint the top local brand in China, Yips Chemical plans to invest aggressively in promotions and advertisements while continuing to refurbish its distribution stores. This comes amid fierce competition from international paintmakers.

Expenditure on advertising and promotion will surely increase in the coming financial year, said chief executive Kenny Wong Kam-yim. Our budget is about 70 million yuan (HK$79.52 million) to 80 million yuan.

Yips Chemical has invested 60 million yuan on advertising for the year ending March 31.

We plan to increase advertisements on Bauhinia Paint every year. More intensive promotions will be launched after the spring festival in 2010, Wong added.

Thanks to an unprecedented high- profile promotion, the sales volume of its water-based paint grew 23 percent in the first half ended September 30.

Our budget on Bauhinias advertisements and promotions will exceed 15 million yuan next year, as we can see the effect after investing in commercial breaks on China Central TV from August through November, Wong noted.

Besides television promotions, there will be advertisements in public transport, billboards and posters in distributing stores, Wong said.

As part of its repositioning, Yips Chemical plans to refurbish 500 stores by the end of March to attract more customers. It also changed the logo and packaging of its Bauhinia brand.

Unlike customers of oil-based paints mainly decorators and construction workers household customers pay more attention to store displays and packaging, Wong explained.

Water-based paints and oil-based paints contributed 50 percent each of coating revenue, Wong said. But the amount of water-based paints will increase as they are more environmentally friendly and healthier.

Oil-based paints are mainly sold for industrial use while water-based paints target households.

The selling price of a new product is 5 percent higher than the average price, said Wong. The company plans to launch more water-based paints for higher profitability. One new item that will soon be on the market is a special paint that can be used for rooms where infants sleep.

Hong Kong people rarely paint their houses themselves, but it is a common practice in mainland cities because people want to save money, said executive director Robert Young Man-kim.

The paint manufacturer is aiming to increase its distribution network to over 1,000 stores in second and third-tier mainland cities by the end of March from 700 stores currently.

We hope to penetrate every second and third-tier city, Young said.

Bauhinia Paint is the fourth most popular paint brand in the China market, and we expect to become the third soon, said Wong.

Roughly, it accounts for 5 to 10 percent of the market. The top two slots are taken by international players.

Nippon Paint sells the most popular brand in the mainland, with Dulux in second place.

Bauhinia Paint, which contributed 20 percent of interim turnover, is the most profitable product of Yips Chemical enjoying a gross margin of over 30 percent while the gross margin of the whole company is just over 20 percent, Wong said.

The brand is beneficial to our gross margin, as we do not have to slash prices because we have an edge in our brand value, he points out.

Looking ahead to the competition with international brands, both Wong and Young maintained that Bauhinia has its own advantages as a local brand.

We designed our brands to be closer to the Chinese concept of family. This strategy differs from other large international brands and may attract more customers, said Wong.

Also, distributors are offered a higher commission compared with foreign brands. On the other hand, the companys production capacity of solvents is expected to be boosted by 37 percent when a new production line in Jiangsu province commences operation by the end of this year, Young noted.

We hope to develop the solvents and coatings business at the same pace, as they have an internal hedging effect when the prices of raw materials rise, it hurts the gross profit of coatings but benefits that of solvents.

Higher raw material prices would raise the production cost of coatings, while the selling price of solvents, which are sold as a commodity, can be marked up, he explained.

Despite the financial downturn and sluggish exports over the past year, the net profit of Yips Chemical soared 44 percent to HK$227.7 million for the first half ended September 30.

One-tenth of Yips Chemicals income was generated from manufacturer customers, Young says, while 90 percent came from domestic sales.

We have no plan to tap overseas markets as China is obviously the worlds largest and fastest-growing market, Young says.

The China market is big enough, it is big enough for our business development in the coming 10 years, Wong added.

There are many opportunities to acquire industrial paint production capacity if the sellers have good technology. But we may not consider buying new brands, said Wong.


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