Hong Co. Ltd. is postponing construction of a new engineering plastics plant in Shanghai, as the company looks to turn around a loss-making first half of its fiscal year.
In a March 24 report to the Hong Kong Stock Exchange, the company said tough economic conditions pushed sales down 15 percent, to HK$667.8 million (US$86.2 million, 589.1 million RMB), in the six months ending Dec. 31, as it reported a loss of HK$24.6 million (US$3.17 million, 21.7 million RMB) in the period, compared with a profit of HK$13.1 million (US$1.69 million, 11.56 million RMB) a year earlier.
But the company also said it would have posted a profit if not for losses on investment properties and forward-valued contracts. The group said postponing the Shanghai plant and other cost-saving measures allowed it to minimize the impact of falling sales, and the company said it sees opportunities as the economic downturn in mainland China has closed competitors.
"As some of the players have been withdrawn recently, competition in the industry is expected to be less severe ¡­ which gives better chances for the group to expand market share," the company said.
"Thus, the management is still positive about the group's prospects."
It also said it would try to expand in China's growing automobile market, and said its factory in Tai Po, Hong Kong, is starting to see tariff benefits from the Closer Economic Partnership Agreement between Hong Kong and mainland China. The company said it was moving some work from mainland China to Tai Po.
The company said its engineering plastics division had the strongest performance, while its trading business was hit hardest, and its colorants and compounded resins business saw a drop in turnover but only a "minor loss."
Director Anthony Wong said in a March 26 telephone interview that the company has seen a modest uptick in business starting in early 2009: "Starting from January this year onwards, things seem a little better. We are keeping our fingers crossed."
He said the company's customers who focus on the domestic Chinese market are faring ok, while those in the export-businesses have been hit hard.
As a result, he said its factories in Xiamen, Fujian Province, Qingdao, Shandong Province and its existing Shanghai plant performed better than its Dongguan, Guangdong Province, facility, which is very export-oriented in areas like the toy industry.
Wong said the Qingdao plant, for example, does a lot of work for Chinese electronics and home appliance maker Haier Group, and Haier's business is fairly steady. Haier used to be a part-owner of NHH's Qingdao factory.
Wong said the group continues to devote resources to researching future growth areas like biodegradable plastics. He said the sharp drop in prices of oil and petrochemical plastics has hurt the price position of biodegradables, but he said the company remains interested in that market and sees it as a long-term business.
The company reduced its workforce from about 820 in mid-2008 to 690 at the end of 2008, Wong said.