Global weakness hammers Chen Hsong earnings

China’s slowing manufacturing economy and difficult conditions in export markets in North America and Europe hammered Chinese injection press maker Chen Hsong Holdings Ltd., sending revenues for the first half of its fiscal year down 27 percent, to HK$964 million (US$123.8 million).

“Weaknesses in Europe and the U.S. hammered China’s export sector, with dwindling orders and low capacity utilization directly suppressing needs for purchasing new equipment,” Hong Kong-based Chen Hsong said in a Nov. 28 filing to the Hong Kong stock market. “In the first half of this financial year, winter appeared to have fallen for the export sector.”

Profit in the first half of its fiscal year, which ended Sept. 30, fell 54 percent to HK$104 million (US$13.3 million), compared with the same period in 2010.

In addition to export weakness, Chen Hsong also said conditions worsened markedly in China’s domestic market, with industries that were “red-hot” last year, like automotive and household appliances, facing overcapacity and mounting inventories.

The Chinese government’s attempt to rein in inflation, overheating and asset bubbles by tightening credit put many small and medium-sized manufacturers in a liquidity squeeze, Chen Hsong said: “Many customers could not obtain the necessary financing from banks to continue daily operations, expand capacity or upgrade production equipment.”

Business in China, whether for export-oriented or domestic-focused customers, took the brunt of the company’s losses, down 35 percent overall, to HK$656 million (US $84.3 million).

Chen Hsong’s figures match other estimates from Chinese plastics industry officials, including the Hong Kong Mould and Die Council, which estimated in September that 20 percent of the factories in South China’s tooling and molding industry could close down, although it said smaller, less well-capitalized factories were most at risk, with larger firms faring well.

Chen Hsong said its sales outside mainland China, on the other hand, fared OK. Sales to Taiwan and direct exports of its molding machines to international markets dropped only marginally, down 1 percent to Taiwan and 3 percent to overseas markets.

Taiwanese sales held basically steady at HK$84 million (US$10.7 million) because its processors were “strongly competitive” globally in their core markets of high-end electronics, mobile phones and computer.

And internationally, continued growth in emerging markets like South American and Southeast Asia fueled direct sales of machines, even if orders from its Chinese customers focusing on exports were down sharply. Sales internationally were HK$224 million (US$28.7 million).

“Sales turnover was affected by the depression in developed Western countries in Europe and the U.S.,” the company said.

Chen Hsong said it remained cautious regarding the rest of its fiscal year, but said it was looking to its strategic cooperation announced earlier this year with Japan’s Mitsubishi Heavy Industries Plastic Technology Co. Ltd. to fuel future growth.

The company said the new 2000 MMX ultra-large tonnage machine it’s developing with Mitsubishi to be made in Chen Hsong’s factories, completed its prototype and passed quality assurance tests.

Chen Hsong said it planned next year to finish an expansion of a factory in Shenzhen, Guangdong province, for manufacturing medium-to-large tonnage machines.

That expansion will help alleviate under-capacity that has forced the group turn down orders for such machines, it said.