Liansu benefits from China's growing pipe market
HONG KONG (March 21, 3:50 p.m. ET) -- China’s largest plastic pipe maker, Liansu Group, said that sales rose 44 percent in 2010 to 7.7 billion yuan (US$1.17 billion), as the country’s growing urbanization and increased government spending on transportation, environmental and water infrastructure pushed up demand for plastic pipe. Executives from the Foshan-based firm, in a March 21 news conference, predicted that demand would continue to rise from the country’s newly-released 12th Five-Year plan and its focus on building more housing, especially affordable homes, and from water conservation and other environmental projects. In a filing to the Hong Kong Stock Exchange, the company said net profit rose 75 percent last year, to 1.13 billion yuan ($172 million). The boom in infrastructure spending has Liansu in the midst of a large expansion. It opened the first phase of a plant in Urumqi, Xinjiang Uygur Autonomous Region, in late 2010 and is targeting factories in Changchun, Jilin province, and in Shaanxi province, along with adding additional capacity at its current factories. Liansu, which has 12 factories in China, expects its production capacity to skyrocket to 1.85 million metric tons by the end of 2012, from about 1.15 million metric tons now, with the majority of the new production coming outside its main factory base in Guangdong province. Liansu is also targeting acquisitions for either market presence or technology, and has set aside HK$223 million (US$28.5 million) from its June initial public offering in Hong Kong, although the company has yet to spend any of that, said Chairman Wong Luen Hei. One of the infrastructure markets where the firm predicted growth is from a government push to boost water conservation and improve the safety of drinking water in rural areas. China’s government plans to spend 4 trillion yuan ($609.1 million) in water conservation and rural drinking water projects in the next 10 years, effectively doubling spending. Vice President Lin Shaoquan said the central government is very interested in irrigation improvements, and he said Liansu is developing technology in pipe irrigation. As well, the company said it expects continued demand for housing and urbanization in China to drive growth, and noted an increased focus on affordable housing in government planning. It said, for example, that the central government has mandated that provincial governments build 10 million subsidized apartments in 2011, up from 5.9 million last year, and said the Chinese government plans to build 2 million low-rent public housing units in 2011, six times more than in 2010. It also expects increased demand from transportation-related infrastructure, including construction of China’s high-speed rail network. At their Hong Kong news conference, company officials generally did not offer a lot of details of their corporate plans beyond the bullish tone in their public filing, but Director Luo Jianfeng said the company felt its economies of scale allowed it to manage price increases in its main materials, PVC, polyethylene and polypropylene. As evidence, he said the firm’s profit margins increased in 2010, with the net profit margin rising from 12.1 percent in 2009 and 14.7 percent last year. The company also said it had boosted spending on research and development, and had gained approval last year from the China Plastics Processing Industry Association to set up the China Plastics Pipe Engineering Technology Research and Development Center. Beyond water-related R&D, it also said it was focusing research in metal-plastic composite pipes, solar heat collection systems and HDPE electric-fusion fittings. In 2010, Liansu said its total sales of pipes and pipe fittings amounted to 789,000 metric tons, 40 percent more than the 566,000 metric tons it sold in 2009. It said it added 191 plastic pipe production lines last year, with more than 200,000 metric tons of capacity.