KangLi International Holdings Ltd. (HKЕХ: 6890), a China-based midstream galvanized steel products manufacturer, announced record profit growth of 193% in 2020.
The company said profit last year increased to 72.4 million yuan from approximately 24.7 million yuan in 2019 thanks to the increased prices on hard steel coil and unpainted galvanized steel products. For the year through December 2020, KangLi International booked 1.61 billion yuan in revenue, an increase of 7% year-over-year.
While the sales volume of hard steel coil and unpainted galvanized steel products declined about 11% and 2%, respectively, from 2019, the sales of painted galvanized steel products inclined by 30% which resulted an overall increase of 5% in sales volume, KangLi said.
In addition, the company has adjusted and optimized its product mix to increase the sales of painted galvanized steel products which have a higher gross profit margin.
The impressive results led the company to consider, pending the approval of its shareholders at the upcoming meeting, paying out a dividend of HK$0.038 per ordinary share for the year ended 2020.
Looking ahead, the company said that the management team is fully confident of its future development as the year 2021 will be the first year of the 14th Five-Year Plan of China, in which China’s economy will enter into a stage of high-quality development.
Through its subsidiaries, KangLi makes and markets unpainted galvanized steel products and cold rolled steel products to midstream steel product processors for processing refrigerators, washing machines, and ovens. The company distributes its cold rolled steel products under the brand name of Jiangnan and distributes its products to both domestic and overseas markets.
CapitalWatch sat down with Zhihong Zhang, the chief executive officer of KangLi International, to find out how the company coped with the global pandemic and its plans for 2021.
CapitalWatch reporter with Zhihong Zhang, the chief executive officer of KangLi International
Covid-19 Brings Opportunities, CEO Says
Despite the impact from the Covid-19 outbreak, which heavily impacted all factories across China in the first half-year, KangLi managed to achieve topline growth, with net profit almost tripled year-over-year.
“Covid hit us hard at the beginning of 2020, but we soon recovered,” Zhang told CW.
“We made full use of that time to optimize our logistics system and upgrade our existing product line, which in turn lowered our operating costs.”
KangLi generates revenues primarily from the sales of hard steel coil and hot-dip galvanized steel products. For the six months through June 2020, the company booked 625.2 million yuan in revenue, representing a decrease of approximately 9.6% year-over-year. During the period, the sales volume of its cold rolled steel products and galvanized steel products totaled 117,689 tons, representing a decrease of 8.4% compared with the corresponding period in 2019.
However, in the second half, KangLi International went on the recovery trend. The gradual easing of the Covid-19 pandemic in mainland China has led to improved demand in the industry, which in turn boosted the price of steel products.
The pandemic had also altered the market landscape. “It has, we believe, brought about not only challenges, but also opportunities. When the pandemic came under control, we were confident that our sales volume and profit will go up further,” the company supplemented.
Additionally, as Zhang told CW, the outbreak raised the demand for white goods globally.
“Instead of going out to restaurants, people chose to stay home and cook more, hence driving the demand for refrigerators, air fryers, and ovens,” Zhang said. “I believe the white goods market is counter-economic cycle and not just covid, the same trend happened during the past two financial crises.”
People tend to spend more on home appliances when they don’t have the luxury of going out, Zhang explained.
Asked how the company plans to expand its market share, Zhang said KangLi International is not interested in competing with lower prices to gain more footage. “Our price is actually the most expensive among competitors, roughly 3% higher than our rivals’. We value the quality of our products and provide customized service,” Zhang said.
KangLi International’s production capacity of 300,000 tons is small compared to other manufacturers, but Zhang said his company specializes in the manufacturing of cold rolled steel products to midstream steel product processors and home appliance manufacturers for the production of end products, and it will stick to its core competitive values.
KangLi said over 70% of its IPO proceeds was used for the construction of its production facilities and equipment, as well as the installation of hot-dip galvanization line to expand the production capacity and increase efficiency.
Currently, the company's product lines are operating at near 100% capacity. KangLi is building a new product line expected to add more than 200,000 tons of supply. Additionally, the company is establishing a new Kuka-Robotics-powered automated 3D smart warehouse which could potentially save more than 20% to 30% labor compared to traditional factories.
According to a recent announcement, the company will expedite its capacity expansion, seeking to finish the installation and testing of new production lines by the end of 2021, thereby bringing new momentum to the future development of the group.
Asked whether KangLi would move outside China to lower-cost areas like Southeast Asia, Zhang said not likely.
“Although being based in the Yangtze river area may bring higher labor or environment protection cost, it’s easier for us to attract talents and we are closer to our upstream and downstream industry chain partners,” Zhang said.
The company is based in Jiangsu province, next to Taihu, a famous tourist attraction. Lots of chemical-related manufacturers have moved out of this area because of its very strict environmental regulations. But KangLi is not worried about the regulations.
“The new factory we are building will be a green facility and we have invested over 20 million yuan to purchase new energy efficient equipment to upgrade our existing product lines,” Zhang said. “Though all these investments increased our operating cost, we believe this is the right direction.”
The company’s shares were listed on the Main Board of the Stock Exchange of Hong Kong on November 19, 2018.