During the first half of 2020, the Coronavirus Disease 2019 (COVID-19) pandemic swiftly swiped the whole world, leading to the further fall in oil prices and plastic material prices remaining weak in the year, while the economic stagnation in various countries could ultimately trigger a global recession. Fortunately, oil prices have ceased falling recently, conducive to the stabilisation of plastic material prices.
In the year under review, cities in Mainland China were locked down for nearly two months due to the pandemic, bringing a halt to most of the domestic economic activities in February and March. Then the situation overseas deteriorated in March and April, which dealt a blow to the global economies. Companies experienced operating difficulties, while the Group’s customers, no matter for domestic or foreign sales, were affected to different extents. Their prudent order placements and low inventory policy directly affected the Group’s orders and as such both the inventory turnover days and the trade receivables turnover days were lengthened by eight days and four days respectively. Although economic activities in China gradually resumed to normal in late March and early April when the pandemic was coming under control, the Group was inevitably impacted despite rapidly imposing various remedial measures.
In response to the severe business environment, the Group acted prudently in its order taking and imposed stringent cost control measures to counteract negative influence such as lower sales amount and volume, and higher costs and expenses. The Group actively optimised product mix in the year, reduced the proportion of trading business segment, enhanced the production of higher margin products, and also effectively trimmed costs and administrative expenses. If excluding the fair value loss of investment properties, overall performance of core operations improved compared to last year.
As the pandemic affected development in Mainland China during the first half of 2020, the government focused on stimulating local consumption of the domestic market in the second half of 2019. Also, as the pandemic was coming under control in Mainland China and economic activities gradually returned to normal in late March and early April, orders started to rebound. Working from home in China and overseas had boosted demand in the food packaging and basic necessity market, bringing more orders to the Group’s colorants, pigments and compounded plastic resins segment with main focus on the China market, thus making it the outstanding performer among three major businesses in the year. In view of the growing demand in Mainland China, the Group continued to expand its domestic sales of food packaging products, and extend its reach to daily necessities such as instant food and drinking water. Besides, demand for high-end sanitary products grew along with new homes built in Mainland China, boosting the Group’ sales performance of related products. In order to secure more new orders, the Group not only expanded the production capacity of its Xiamen and Qingdao plants, but also brought the production technologies of high-end sanitary products from its Xiamen plant to the Northern China market, which had also started producing related products.
In the year under review, as plastic material prices continued to fall and orders from the Group’s domestic automobile manufacturer customers declined on China-US trade negotiations, sales of the engineering plastic business was affected. Apart from maintaining its orders from the internationally-renowned brands, the Group had also continued to enrich its product portfolio, utilise its business advantages, focus on promoting higher margin products, and actively approach and engage in discussions with end customers, all in a bid to explore new income streams and expand its client base. The logistics industry experienced rapidly increasing demand amid the pandemic. The purchase amount of heavy and commercial vehicles in China also increased accordingly. By capitalising on its more than 50 years of industry experience and excellent reputation, the Group is set to secure more engineering plastic orders relating to heavy and commercial vehicles and broaden its existing customer portfolio.
The plastic trading business was adversely affected by the China-US trade negotiations, domestic economic slowdown and falling prices of raw materials. The outbreak of pandemic in the first half of 2020 had seriously hit the export-oriented customers, making them more cautious in the placing of orders. Despite these challenges, the Group continued to implement set strategies and maintain close ties with existing customers. That plus the more mature operation model of cooperating with internationally famous fast food restaurant chains contributed stable orders to the Group. Besides, the Group strived to provide materials for the developers of smart products, household goods and high-end kitchenware, thus opening up new income sources. In addition, the Group effectively reduced and controlled inventory. Apart from continuously implementing its stringent cost control measures, the Group will explore more ways to expand income streams and secure higher margin orders in order to maintain stable business.
HUI Sai Chung