The global landscape in the second half of 2022 remained complex and volatile, with geopolitical tensions persisting. Externally, the impact of the conflict between Russia and Ukraine and COVID-19 on international shipping and supply chains has not been fully eradicated. In Asia, the epidemic has been recurrent and the outbreak in Mainland China has changed over the period. Some regions in Mainland China tightened their prevention measures to contain the spread of the virus until the government announced a nationwide relaxation of epidemic prevention measures in December. A combination of adverse factors, including soaring global inflation and aggressive interest rate hikes by central banks in Europe and the US to curb market demand, all contributed to a stagnant global economy and increased fears of a recession.
In the face of an uncertain macroeconomic environment, customers remained cautious in placing orders and adopted low inventory strategies, which affected the Group’s overall sales volume. In addition, international crude oil prices dropped significantly during the period under review, with a corresponding decline in plastic raw material prices. As a result of the drop in prices and sales volume, the Group recorded a decrease of total turnover.
During the period under review, the Group’s overall gross profit decreased, mainly due to the decline in overall sales volume and selling prices, and the gross profit margin also decreased. The decrease was primarily due to the fall in turnover and gross profit margin as well as the increase in finance costs.
Regarding the colorant, pigment and compounded plastic resin business, geopolitical issues prompted some overseas customers to redirect their orders back to domestic production during the period under review. The Group seized these opportunities, but as the external situation disrupted overall demand, turnover from this business segment fell However, related expenses also declined and gross profit margin fell slightly, and together with the reduction in inventory provision, profit before taxation increased. The business segment has also built up a stable customer base in sectors such as automotive applications, food packaging and construction materials.
Clouded by the external environment, the decline in market demand dragged down the turnover and gross profit margin of the engineering plastic business. The end products of this business include general household appliances such as domestic appliances and high-end kitchenware, the demand for which is susceptible to changes in market conditions. Customers have to clear the inventory that they added during the pandemic, so an obvious improvement will only be seen once the market stabilises.
The period under review saw a decline in both prices and volumes. Although the sales team successfully expanded its customer base last year and received new project orders for new generation new energy vehicles and high-end personal care appliances, market demand was extremely weak during the period. Turnover from the plastic trading business decreased and gross profit margin dropped. A loss before income tax was recorded as a result of increased finance costs and foreign exchange losses due to the depreciation of the Renminbi and a more cautious inventory provision estimate was adopted owing to recent economic uncertainty.
HUI Sai Chung