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Company Profile
Chairman Lu Changqing
Share Issued (share) 5,449M
Par Currency HKD
Par Value 0.1
Industry Nonferrous Metal
Corporate Profile Business Summary:
China Zhongwang is a world-leading fabricated aluminium products developer and manufacturer. The Group provides a myriad of quality fabricated aluminium products and offers integrated light-weight solutions for such downstream sectors and fields as ecological construction, transportation, machinery and equipment and electric power engineering. With shared resources, the Group’s core businesses, namely industrial aluminium extrusion, aluminium flat rolling and further fabrication have achieved synergistic development.

Performance for the year:
The Group’s total revenue rose by 27.4% year-on-year to RMB9.33 billion for the six months ended 30 June 2018 (“the Period under Review”). The upgraded version of the high value-added aluminium alloy formwork continued to receive positive market responses, and its sales volume increased by 26.3% year-on-year to 141,000 tonnes. Overall gross profit was RMB2.96 billion, representing an increase of 21.6% year-on-year. Overall gross margin was 31.7%. Net Profit was RMB1.27 billion.

Business Review
During the Period under Review, the Group steadily implemented its strategy for “focusing primarily on China market and to a lesser extent on the overseas markets”. Under this strategy, it stepped up its technological research and development. It innovated high value-added products, thus gradually transforming itself from a supplier of high-end fabricated aluminium products into a provider of integrated light-weight solution.

During the Period under Review, total revenue of the Group amounted to approximately RMB9.33 billion. Overall gross margin was 31.7%. Profit for the period amounted to approximately RMB1.27 billion. Earnings per share were approximately RMB0.15.

Aluminium alloy formwork has advantages over traditional formwork in lightness, convenient application in construction, the ability to raise efficiency and recyclability. The Group’s aluminium alloy formwork has gained prominence on the market and becomes a key product of the Group. Moreover, the Group improved the product performance of aluminium alloy formwork, enhanced its surface treatment and made it more environmentally friendly. The upgraded aluminium alloy formwork has been launched in the market and received good responses. The Group has since built a nationwide clientele for its aluminium alloy formwork. Among its major customers are those that engage in construction or real estate development sectors. During the Period under Review, the Group sold 140,593 tonnes of aluminium alloy formwork, representing an increase of 26.3% compared with 111,313 tonnes for the corresponding period in 2017, generating revenue of approximately RMB5.31 billion.

During the Period under Review, the Group sold 81,235 tonnes of industrial aluminium extruded products, generating revenue of approximately RMB2.11 billion, which was lower than that for the corresponding period in 2017. Both the sales volume and revenue decreased, mainly due to the fact that the production of key high value-added products such as aluminium alloy formwork and aluminium alloy products for transportation sector occupied part of the capacity of industrial aluminium extruded products, as a result of the Group’s product mix optimisation.

The Group completed the acquisition of Aluminiumwerk Unna AG. (“Alunna”), a highend aluminium extrusion manufacturer, in Germany, and Silver Yachts Ltd. (“Silver Yachts”), a large-scale all-aluminium superyacht builder, in the second half of last year. With the most advanced technologies and high value-added products, the acquisitions are complementary to the Group’s businesses. The Group will further improve its production techniques through technological exchange and will continue to expand the production capacity of Alunna. Recently, Silver Yachts has established a shipyard in the coastal area of Guangdong Province, China, principally for the manufacturing of all-aluminium yachts and commercial vessels.

During the Period under Review, sales volume of the Group’s deep-processed products was 19,145 tonnes and the revenue amounted to approximately RMB500 million, representing an increase of 104.9% compared with RMB240 million for the corresponding period in 2017. The increase was principally due to the growth in volume of domestic sales of fabricated aluminium parts for automobiles, passenger cars and railway vehicles during the Period under Review.

The deep processing business is a key business segment of the Group. The Group possesses comprehensive capabilities that range from independent design to manufacturing and fabrication. During the Period under Review, the Group continued to lead the way in the development of the light-weight materials for car body in China, and is at the forefront of the industry in terms of technology, production technique, product variety, product mix optimisation and cost control. The Group developed and launched large-sectional aluminium parts for passenger cars and commercial vehicles, which received positive market response. In particular, the Group has begun a partnership with FAW Jiefang Automotive Co., Ltd. (“FAW Jiefang”) to co-develop an unmanned container handler designed for port’s container transportation. In addition to provision of welded components made from relevant materials, technicians of the Group have also provided FAW Jiefang welding and assembling services. The Group also cooperated closely with CH-Auto Technology Co., Ltd. in developing the “Qiantu K50”, an electric sports car which has been newly-launched recently. The Group was involved in the early stage of design and development of the prototype, working on component structure optimisation, material testing, and section improvement, and making plans for mass production of the product. The Group has developed high value-added large-sectional parts and other components for passenger cars and commercial vehicles through ongoing product improvements and technology upgrades, ensuring sufficient resources to match the rapid development of China’s market for new energy vehicles.

The first production line of the Group’s aluminium flat rolling project has commenced commercial production. It has been producing principally high-quality standard products for customers from different sectors, such as manufacturing and transportation. The project has successfully obtained industry standard certifications covering a wide range of sectors, including automobiles, aviation, shipbuilding and railway. During the Period under Review, the Group’s aluminium flat rolling business sold 83,768 tonnes of products and generated revenue of approximately RMB1.39 billion. Meanwhile, the second production line is undergoing final optimization and commissioning, and trial production of sample orders from prospective customers was also carried out at that production line.

In the Period under Review, the Group was named as a Model Enterprise/Sectoral Champion of the Manufacturing Industry for industrial aluminium extrusion by the Ministry of Industry and Information Technology. To win this recognition, companies have to meet two requirements: having developed specific market segments for a long time, and having a strong market position and a large market share. Winning this recognition highlights the Group’s strong comprehensive strength accumulated during the years of development in the field of Industrial aluminium extrusion, which is also a national-level recognition of the Group’s contribution to promoting the upgrading of China’s manufacturing industry. In addition, the Group has made an all-out effort to develop new and advanced products with superior performance, and has expanded the scope of applications of new technologies, new techniques and new approaches in the fields of rail transportation, aviation and aerospace, shipbuilding and ocean engineering. The Group has a national-level enterprise technology centre, a research centre for cooperation between the central and provincial governments in engineering, a nationallevel postdoctoral workshop and a provincial-level engineering and technological research centre. This can help the Group develop itself into an aluminium fabrication enterprise that meets international standards.

Prospects:
China’s economy has entered a stage of high-quality development with an emphasis on ecological development, posing a challenge to industrial manufacturers in striving for high-end distinction and low-carbon upgrade, while creating new market opportunities for eco-friendly aluminium alloy that is light-weight, highly recyclable and energyefficient. As the best alternative light-weight material to steel, aluminium alloy plays an important role in the upgrade and transformation of manufacturing industry in China, especially in the high-end manufacturing sectors, such as light-weight transportation and eco-friendly construction.

In response to the development needs of China’s new urbanisation drive, government policies encourage ecological construction and the replacement of wood with aluminium. Aluminium alloy formwork attracted instant attention as it was one of the ten new technologies recommended in the construction industry in 2017. The “Key Tasks of the Building Energy Efficiency and Technology Division of the Ministry of Housing and Urban-Rural Development 2018” (《住房城鄉建設部建築節能與科技司二零一八 年工作要點》) issued in April 2018 reiterated the importance of energy efficiency in construction and the importance of extending eco-awareness to all segments of the construction industry as well as every production process. It set a target that eco-friendly buildings should account for 40% of newly constructed buildings by the end of this year. The “Comprehensive Work Plan for Energy Conservation and Emission Reduction in the 13th Five-Year Plan Period”(《「十三五」節能減排綜合工作方案》) aims to increase the proportion of ecological buildings in urban areas to 50% by 2020. In comparison with the conventional formwork that are made of wood, plastic and steel, aluminium alloy formwork is pollution-free, highly reusable and recyclable, making it an important material for ecological construction. There remains plenty room for further increase in the proportion of aluminium alloy formwork used in China’s construction market.

Due to its advantages of weight reduction and supremacy in safety and performance, aluminium alloy is regarded as the first-choice material for light-weight vehicles. With the improvement in production techniques, aluminium alloy has been widely used in the manufacturing process of automobiles, such as the manufacturing of engines, vehicle frames as well as other vehicle components and parts. The rapid development of the new energy vehicle industry in China has stimulated a strong growth of the aluminium application in the automotive industry. According to the China Association of Automobile Manufacturers (the “CAAM”), the production and sales volumes of new energy vehicles in China were approximately 413,000 and 412,000, respectively, in the first half of 2018, representing a significant year-on-year increase of 94.9% and 111.5%, respectively. The industry of new energy vehicle will create huge demand for aluminium, as projected by the CAAM, the annual production and sales volumes of new energy vehicles will exceed 1 million in 2018. Meanwhile, the favourable policies have motivated automakers to seek light-weight solutions, accelerating the development of the new energy vehicle market. In June, the State Council released the “Three-Year Action Plan for Winning the Blue Sky Defense Battle” (《打贏藍天保衛戰三年行動計劃》) (the “Action Plan”). It pledges to implement the “China VI” emission standard in advance in some key regions starting from 1 July 2019, to push the major automakers to upgrade their energy-saving and emission reduction solutions. In addition, the Action Plan explicitly states that the country will develop a green transportation system and promote the use of new energy vehicles in public transportation, sanitation vehicle and logistics vehicle, with an aim to achieve 80% of the above vehicles used in the key regions becoming new energy vehicles by 2020. Ports, airports and railway freight yards in the key regions are expected to purchase new energy or clean energy vehicles for addition to their fleets or replacement of obsolete vehicles. Furthermore, all buses in the key regions will be replaced by new energy vehicles. The growing demand for light-weight vehicles and the development of green transportation system will continuously foster growth of high-end aluminum alloy applications.

At present, aluminium alloy has been widely used for manufacturing rail trains in China, such as high-speed trains, subway trains and light rail trains. High-speed rail and urban rail transport are in a golden era of development, creating a Blue Ocean for the highend applications of aluminium alloy. On 1 July 2018, the long version of “Fuxing EMU” with aluminium intensive carriage ran on the Beijing-Shanghai line for the first time. The Group, as the key supplier of aluminium parts for “Fuxing EMU”, has provided a variety of fabricated aluminium products. According to the statistics from the National Railway Administration of the PRC, the national railway network expanded by 2.4% in 2017 over the previous year to 127,000 km, of which 25,000 km was attributable to the high-speed rail network. According to the estimation cited in the “Medium-and LongTerm Railway Network Plan”(《中長期鐵路網規劃》), the railway network will reach 175,000 km in 2025, of which 38,000 km will be attributable to the high-speed rail network. According to a report issued by the China Association of Metros, China’s urban rail transit has entered a stage of rapid development, and by the end of 2017, a total of 34 cities in China had launched rail-based systems with a total length of 5,033 km in operation, hitting a record high level. Moreover, by the end of 2017, construction plans of urban rail transit networks of 7,321 km in 62 cities were approved.

The above market trends and policies have created a favorable environment for the growth of fabricated aluminium product suppliers in China. In this respect, the management has formulated the following development strategies:

1.Continue to optimise and expand capacities to reinforce the Group’s overall competitiveness: The aluminium extrusion equipment purchased by the Group in 2016 will commence commercial production in phases in two to three years. Such move will reinforce the Group’s integrated competitiveness in the high-end aluminium fabrication industry;
2.Diversify high-end product offerings and enhance the overall added value of products: The Group shall continue to leverage its strengths in cutting-edge production techniques and the ability of its design team to provide customers with more integrated light-weight solutions. By strengthening its R&D and production capabilities, the Group will continue to diversify product offerings, improve product quality and enhance the overall added value of products; and
3. Unleash the value of the Tianjin-based aluminium flat rolling project, adding a new growth engine to drive the Group’s long-term development: The Group shall further improve the product quality and stability of the first production line to accelerate its capacity ramp-up. Rigorous equipment testing of the second production line shall be conducted in order to achieve early commencement of production. At the same time, the Group shall accelerate the pace of R&D and the process of high-end product certification to optimise product mix.
The above development strategies will fully capitalise the synergy of the Group’s core businesses, and enable the Group to tap the opportunities brought about by the industrial upgrade in China with a more competitive product mix and more comprehensive business strategy planning.
Information from the financial statements of listed companies
Last Update: 2018/10/05
 
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