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Public company info - China Weaving Materials Holdings Ltd. , 03778.HK
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China Weaving Materials Holdings Ltd., 03778.HK - Company Profile
Chairman Zheng Hong
Share Issued (share) 1,252,000,000
Par Currency Hong Kong Dollar
Par Value 0.1
Industry Textile & Apparels
Corporate Profile Business Summary: The Group is principally engaged in the business of manufacturing and trading of yarn products and related raw materials. Performance for the year: The revenue of the Group decreased by 2.2% to approximately RMB1,796.4 million for the year ended 31 December 2019 as compared to approximately RMB1,836.2 million for the year ended 31 December 2018. The gross profit and the loss attributable to the owners of the Company for the year ended 31 December 2019 were approximately RMB116.1 million and approximately RMB1.4 million, respectively. Business Review： The sales volume of yarn products of the Group increased by 7.8% from approximately 119,506 tonnes for the year ended 31 December 2018 to approximately 128,808 tonnes for the year ended 31 December 2019. The production volume of yarn products of the Group slightly increased by 0.5% from approximately 122,856 tonnes for the year ended 31 December 2018 to approximately 123,528 tonnes for the year ended 31 December 2019. In order to cope with the adverse market conditions, the Group has adjusted its product mix and shifted its emphasis to mass market products which are generally geared to downstream customers engaged in the PRC domestic market. Certain production capacities have been modified from the production of polyester-cotton blended yarn products to pure polyester yarn products which are mass market products. Although high end products, including polyester-cotton blended yarn products and pure cotton yarns products with higher counts, generally produce better margin but they are more geared to downstream customers engaged in export markets to the US and Europe which are currently under severe headwinds. The Group is also adapting a more flexible pricing strategy in response to the current market conditions with a view to sustain sales volume. The above measures will increase the pressure on gross margin and profitability of the Group but they could result in a healthier inventory level and make the Group more endurable under harsh market conditions. The Group’s subsidiary company, Xinyuan, has continued to rationalise its production in 2019. Xinyuan is engaged in the manufacture and trading of polyester staple fibres (“PSF”) which are one of the basic raw materials of the Group for the production of polyester yarns. The sales volume of PSF increased by 9.0% from approximately 20,000 tonnes for the year ended 31 December 2018 to approximately 21,808 tonnes for the year ended 31 December 2019. The production volume of PSF increased by 63.1% from approximately 18,000 tonnes for the year ended 31 December 2018 to approximately 29,358 tonnes for the year ended 31 December 2019. Xinyuan has been utilising recycled plastic chips as one of its raw materials and the related products are considered environmental friendly. However, since the PRC government restricted the import of overseas waste in the end of 2017, the supply of recycled plastic chips has been very tight and the prices have gone up. This has led to narrowing of price disparity between PSF manufactured from recycled raw materials and PSF manufactured directly from petroleum by-products like purified terephthalic acid. PSF manufactured from recycled raw materials has come under intense competitive pressure and the industry has been consolidating since then. The continuous downward trend in oil prices in the second half of 2019 has exacerbated the difficult operating environment for manufacturers of PSF from recycled raw materials and Xinyuan, as a result, suffered heavy operating loss in 2019. In this connection, for the sake of prudence, the Group has conducted a valuation of the PPE of Xinyuan and has written down the book value by approximately RMB44.1 million. However, as the industry further consolidates and some international apparel brands have begun mandating the use of environmental friendly raw materials for their products, the Group considered the industry should reach a turning point soon. As one of the minority shareholders of Xinyuan did not want to continue with the investment, the Group has acquired an additional 26% interest in Xinyuan in July 2019 from the minority shareholder at a consideration of RMB18.2 million. The Group is confident in the long term future of Xinyuan and believes the acquisition could streamline the shareholding structure and improve management efficiency. Prospects: In 2019, the PRC suffered from the trade war with the US, a weak European economy and a slowing domestic economy. In January 2020, the US and the PRC governments signed the Phase One trade agreement. It signifies, at least temporarily, a truce of trade war between the two countries, and alleviates one of the major uncertainties for the global economy. However, the outbreak of the Epidemic has dealt a serious blow to the fragile global economy. In March, the price war between Saudi Arabia and Russia triggered a sudden collapse in crude oil prices. The Epidemic and the crash of crude oil prices sent the global financial markets into panic. The above-mentioned factors have introduced risks and difficulties for the global economy and the textile industry as a whole. In order to cope with the adverse market conditions, the Group has modified certain production capacities in order to adjust its product mix. The Group also adapted a more flexible pricing strategy in response to the current market conditions with a view to sustain sales volume. Looking forward, the US and the PRC governments have yet to agree on the Phase Two trade agreement. The Epidemic will take time to be put under control and there is also the threat of downward price pressure of oil related products triggered by falling crude oil prices. All the above factors will continue to pose threats to the already sluggish global economy and the textile industry in the PRC. The Group will continue to closely monitor the market conditions and take necessary measures to adjust its production capacities, product mix and pricing strategy. Taking into account the benefits from the enlarged product portfolio and the economies of scale, the Group is confident about its long term future. The Group believes it is well positioned to take advantage of any positive outlook in the textile industry given its scale of production, strong brand recognition and professional management.

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