Huazhang Technology’s 2016/17 Interim Net Profit Increased by 1.5 Times

Will step up promotion of refuse derived fuel technology and expand to countries falling under the “One Belt One Road”

HONG KONG--()--Huazhang Technology Holding Limited:

Financial Highlights

  6 months ended 31 December  
RMB   2016   2015   Change
Revenue 200,560,216   110,742,277 +81.1%
Gross profit 47,801,861 29,142,895 +64.0%
Gross profit margin 23.8% 26.3% -2.5ppt
Profit attributable to owners of the parent 14,277,890 5,641,334 +153.1%
Basic earnings per share 0.04 0.02 +100%

Huazhang Technology Holding Limited (“Huazhang” and its subsidiaries, together, the “Group”, stock code: 1673) announced its interim results for 6 months ended 31 December 2016. The Group’s revenue in the reporting period amounted to approximately RMB200.6 million (6 months ended 31 December 2015: RMB110.7 million), representing an increase of 81.1%. Profit attributable to owners of the parent significantly increased by approximately 153.1% to RMB14.3 million (6 months ended 31 December 2015: RMB5.6 million).

Business Review

The year 2016 has turned out to be a fruitful year for China’s paper manufacturers amid signs of recovery shown by the country’s paper-making sector. Major players in the paper industry generally reported a double-digit bottom line growth, with some even recording more than double increase in their profits, which was primarily driven by higher paper price, RMB’s depreciation and tighter paper supply.

The Group has made remarkable achievements along with the broader paper industry in a productive year. For the 6 months ended 31 December 2016, the contracts signed by the Group totaled approximately RMB245.1 million, representing an increase of approximately 14.6%. Among them, the contract value of integrated solutions for the paper industry accounting for the total contract value during the period is about RMB160.1 million, and increase approximately 9.7% compared to the same period in 2015. Currently, the demand on integrated solutions for the paper industry is strong, mainly due to many large and medium-sized papermaking enterprises are lack of technologies and engineers. In this regard, the Group has more than 15 years’ experience in the paper industry, with more than 100 engineers and project management engineers whose assist customers to build different papermaking production lines and provide solutions.

During the period, the Group set up overseas business division and explore the overseas markets actively. In the past six months, staffs of overseas business division have visited the Middle East and Southeast Asian countries, and visited the paper-making enterprises in such areas. At present, the Group has explored a number of potential customers, and negotiate the business opportunities.

Industrial automation systems and related projects

Revenue from sales of industrial automation business increased year-on-year by approximately 120.6 % to approximately RMB151.9 million for the 6 months ended 31 December 2016. Such increase was primarily attributable to increase in revenue contributed from provision of integrated solutions services in relation to industrial automation systems. The revenue from integrated solutions services increased from nil for the 6 months ended 31 December 2015 to approximately RMB108.5 million. The gross profit margin of industrial automation business decreased from approximately 26.6% to approximately 23.2%.

Sludge treatment products

Revenue from sales of sludge treatment products decreased year-on-year by approximately 8.3% to approximately RMB16.0 million for the 6 months ended 31 December 2016, primarily attributing to more keen competition in the market. The gross profit margin for our sludge treatment products decreased from approximately 21.8% to approximately 18.6%.

After-sale and other services

Revenue from provision of after-sales and other services decreased year-on-year by approximately 17.8% to approximately RMB20.1 million for the 6 months ended 31 December 2016. Such decrease was primarily attributable to provision of design and installation service decreased to approximately RMB3.8 million. The gross profit margin for provision of after-sales and other services decreased from approximately 28.7% to approximately 25.6%. Decrease in gross profit margin for provision of after-sales and other services was due to a lower profit margin in provision of design and installation service in 2016.

Prospects

Looking forward to the first half of 2017, the positive trend of the paper industry in 2016 will sustain, and the investment of paper-making enterprises in fixed assets will increase. However, the difficulties faced by the industry, including the demand for paper products of better quality by the market, the need for enterprises to control and lower costs more effectively and comply with more stringent environmental requirements, should not be overlooked. The Group will focus on the problems faced by paper-making enterprises and make timely response to take the lead in the market. The actions are as follows:

“Intelligent Manufacturing”

The Thirteenth Five-year Plan of China has clear indications for implementing the “Made in China 2025” scheme to advance the progress of industrialisation and modernisation of the manufacturing industry in China. The Group expects that the development of the production process of the paper industry will align itself with national policies, and paper corporations will proactively promote the paper industry’s own “Made in China 2025”. The Group will increase its investment in research and development and enhance its digital and smart products and services to meet the needs of the papermaking industry to improve its product quality while effectively controlling costs and increasing efficiency through collaboration with universities or technology corporations.

“Clean manufacturing”

The Chinese government has imposed more stringent environmental protection requirements on the paper industry in recent years. The government has also demanded implementation of energy conservation and emission reduction measures nationwide in full swing by releasing further environmental protection requirements in 2017. Such moves will increase the capital expenditure of paper manufacturers in areas related to environmental protection, which may present new opportunities for the Group in sludge and wastewater treatment. Currently, sludge treatment in the paper industry has become the Chinese government’s key area for imposing control. The refuse derived fuel technology will provide the paper industry with a new solution for sludge treatment, and the concept of converting waste into combustible fuel is highly suitable for paper manufacturers equipped with power plants and boilers. Such technology has been widely applied in many countries such as Japan and Israel. The Group will step up promotion of the technology in 2017.

“One Belt, One Road”

The countries and regions falling under the“One Belt, One Road” initiative have strong demand for China’s paper technology and equipment, and they present huge potential for the global paper industry, yet they are quite backward in the development of the paper industry, and lack quality equipment or service providers despite having greater market potential compared with that of China. However, the development of paper industry in these areas is relatively lag behind, such areas are lack of high-quality equipment suppliers or service providers. Therefore, the Group believes that its over 15 years’ experience in provision of equipment in the paper industry together with leading automation systems technologies, can provide inexpensive and high qualities and services to the papermaking enterprises in the region.

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About Huazhang Technology Holding Limited

The Group is principally engaged in the research and development, manufacture and sale of industrial automation and sludge treatment products, the provision of after-sales service and wastewater treatment business in the PRC.

Contacts

Stimulus Investor Relations Ltd.
Ms. Hill Ho / Ms. Jessica Choi
+852 3159 2944 / +852 3159 2916
hill.ho@stimulus-ir.com / jessica.choi@stimulus-ir.com

Contacts

Stimulus Investor Relations Ltd.
Ms. Hill Ho / Ms. Jessica Choi
+852 3159 2944 / +852 3159 2916
hill.ho@stimulus-ir.com / jessica.choi@stimulus-ir.com