Zhejiang Longsheng: Increase in Product Gross Profit Rate Promotes Performance   

Zhejiang Longsheng Group Co., Ltd. (Zhejiang Longsheng, SH: 600352), a subsidiary of Zhejiang Longsheng Holding Co., Ltd., is headquartered in Shangyu, Zhejiang province. It is the only listed company in the dyestuff sector of China. Zhejiang Longsheng has 13 controlled subsidiaries mainly distributed in Sichuan, Jiangxi provinces and Shanghai. Main products of the company include disperse, reactive and acid dyes, assistants and intermediates with a total capacity of over 120 000 t/a.

Increase in product gross profit rate   

The dyestuff industry in China has developed rapidly in recent years, making the dyestuff output higher and improving performance. The output of dyestuffs in China reached 1.426 million tons in 2007, an increase of 16.71% over 2006. With the elimination of export rebates and China's ever increasing efforts to protect both natural resources and the environment, the price of dyestuffs in China has increased constantly from the second half of 2007 and the average growth is more than 10%. With the implementation of energy saving and pollutants reduction policies established by the state, the cost of environmental protection increases rapidly in the dyestuff industry as it is a high-polluting sector. Some small enterprises are forced to reduce or suspend production, leading to much greater concentration in the sector. The price negotiating ability of Zhejiang Longsheng is thus enhanced.
   The disperse dyes output of Zhejiang Longsheng has been the biggest in China for seven years, with production capacity reaching 60 000 t/a, a 40% share of the domestic market. Their reactive dyes capacity is 30 000 t/a, controlling more than 20% of the domestic market. The operating revenue and the net profit of the company have increased stably in recent years. The net profit in the first quarter of 2008 was more than 100% higher than the same period of 2007. The gross profit rate in disperse dyes and intermediates also increased. It is estimated that the net profit of the company from January to June 2008 was more than 150% higher than the same period of 2007 when the net profit was RMB143.04 million and the EPS was RMB0.2424. Based on a growth of 150%, the net profit of the company in the first half of 2008 may reach RMB357.60 million. The main reason for the drastic growth of the net profit is that the market price of its products such as dyestuffs, intermediates and water reducers in both domestic and overseas markets is much higher than in the same period of 2007. Besides, owing to the greater concentration of the dyestuff sector, the market share of major products of the company is also higher than that in the same period of 2007.

Equal emphasis on internal and external developments   

Zhejiang Longsheng pays great attention to its own internal development. It raised RMB1 116.4817 million through an additional public offering in October 2007. The funds were mainly used in four projects including a 70 000 t/a aromatic amine renovation project, a 20 000 t/a environmental friendly reactive dye renovation project, a 150 000 t/a high-effect water reducer renovation project and a 15 000 t/a sewage treatment project. The sewage treatment project is already completed. The reactive dye project and the high-effect water reducer project will start production in 2009. The 70 000 t/a aromatic amine project will hopefully be completed in the first half of 2010. After the completion of these projects, the proportion of reactive dyes, intermediates and water reducers in the main business of the company will further increase. The company is also investing more in technical innovation and R&D. The IPMT (Integrated Project Management Team) framework of the company is basically formed. The successful development of general hydrogenation units with advanced technology has laid a reliable foundation for the rapid development of the company's intermediate sector.
   The external development of the company is also in progress. Zhejiang Longsheng signed the "Share Rights Transferring Agreement" with Shandong Befar Group Co., Ltd. (Shandong Befar) on August 15th 2007, and acquired 9.55% equity in Shandong Befar. Shandong Befar located in Binzhou, Shandong province, is a comprehensive enterprise mainly engaged in the fine chemicals and chlor-alkali production. The product portfolio and production process of Shandong Befar have great correlation and complementation with the fine chemicals part of Zhejiang Longsheng. Zhejiang Longsheng hopes to strengthen strategic partnership with Shandong Befar through this equity participation, deepen and extend the fine chemical industrial chain and upgrade the comprehensive competitiveness of Zhejiang Longsheng in fine chemicals sector. (CCR2007, No. 25) In March 2008 Zhejiang Longsheng acquired 74.81% equity in Zhejiang Longhua Holding Company for RMB359.8240 million. Through the equity acquisition Zhejiang Longsheng can extend its industrial chain to the upstream inorganic chemical sector. (CCR2008, No. 11) In October 2007 Zhejiang Longsheng signed the "Equity Subscription Agreement" with India KIRI Dyes and Chemical Limited, (India KIRI) one of the biggest dyestuff and intermediate producers in India. (CCR2007, No. 30) Zhejiang Longsheng and India KIRI also plan to expand cooperative opportunities beyond dyestuffs and intermediates in the future.