Significant Improvement in Sales of Processed Wood Products;
Continues to Develop Wood Processing Procedure Service
HONG KONG – (ACN Newswire) – China Wood Optimization (Holding) Limited (“China Wood Optimization” or the “Group,” HKEX stock code: 1885), an advanced new technology group engaged in self-developed Wood Processing Procedure Service as well as the sale of its self-produced less-shaved Processed Wood Panels, has announced its interim results for the six months ended 30 June 2018 (the “review period”).
During the review period, the Group’s revenue increased 12.5% year-on-year to RMB117.6 million. The increase was mainly attributable to a rise in sales of its less-shaved Processed Wood Panels, as certain raw poplar wood panel suppliers that some of the Group’s customers had purchased materials from closed operations or relocated due to non-compliance with the Air Pollution Control Work Plan. As a result, these customers were unable to purchase adequate raw poplar wood panels and need to fill their shortfalls by purchasing less-shaved Processed Wood Panels from the Group.
Gross profit and profit for the period amounted to RMB56.4 million and RMB24.8 million respectively. Overall gross profit margin of the Group adjusted downwards to 48.0% in 1H2018 (1H2017: 66.0%) due to an increase in sales of less-shaved Processed Wood Panels during the review period, which yield a much lower gross profit margin at 25.6% compared with a 70.7% gross profit margin for providing Wood Processing Procedure Service.
Business review
Processed Wood Products (Less-shaved Processed Wood Panels)
The Group produces less-shaved Processed Wood Panels, which are poplar wood panels that undergo the Group’s Wood Processing Procedure and then shaved, sanded and trimmed into strips according to customers’ requirements. These processed wood panels are generally used to produce floor planks, doors and furniture.
Revenue from the sale of less-shaved Processed Wood Panels rose significantly by 453.3% to approximately RMB59.2 million, and accounted for 50.3% of the Group’s total revenue during the review period. Despite a lower gross profit margin, this segment was able to yield an increase in gross profit margin to about 25.6%, up by 1.3 percentage points, due to a rise in average selling price to RMB3,605/m3.
Wood Processing Procedure Service
The Group also provides a self-developed and competitively priced Wood Processing Procedure Service that uses its self-developed and patented impregnation fluid. During this procedure, the properties of raw wood panels provided by customers are significantly improved. Both the impregnation fluid and the procedure are core technologies of the Group and are difficult to replicate in a short time. Furthermore, they can yield a high gross profit margin due to shorter production cycle and lower production cost than producing less-shaved Processed Wood Panels.
Mainly due to the Air Pollution Control Work Plan, which caused a drop in total amount of raw poplar wood panels purchased from some of the customers for the Group to perform its Wood Processing Procedure, revenue contribution from this segment declined 37.7% to RMB58.4 million (1H2017: RMB93.8 million), which accounted for 49.7% of the Group’s total revenue. Despite the smaller sales volume during the review period, the Group was able to charge a slightly higher average processing fee of about RMB1,887 per ton of impregnation fluid used.
Recent Development
In order to comply with the Air Pollution Control Work Plan, the Group temporary ceased operation of its coal-fired boiler at its Handan Factory in Hebei Province in the PRC in the second half of 2017. However, the Group and the local government of Handan City reached a conclusion whereby the local government would assist in the construction of a natural gas pipeline for use by the Handan Factory and support the Group in the construction of a new natural gas boiler that would comply with the Air Pollution Control Work Plan. The Group expects to complete construction of the natural gas boiler and resume operation of the Handan Factory by the end of 2018 if the natural gas supply is stable.
In 2018, the Group was awarded the “2017 State Science and Technology Improvement Award” (Second Class) in respect of material modification and functionalization technology based on modification of wood cell, as well as the “High and New Technology Enterprise Certificate” which allows the Group to enjoy preferential taxation until 2019. Both achievements represent important milestones and acknowledgment of the Group’s influence and market leadership in the wood optimisation industry.
Outlook
In the future, China Wood will continue to increase market recognition of its less-shaved Processed Wood Panels and focus on providing Wood Processing Procedure Service to customers in the PRC. By focusing on rendering its Wood Processing Procedure Service, the Group will be able to yield a higher gross profit margin with its core technologies, and reveal its intrinsic value. Furthermore, the Group will be able to reduce the need for production facilities and fully utilize its processing capacity.
Ms. Yim Tsun, Chairlady of China Wood Optimization, said, “We are pleased that the industry has become more environmentally conscious and are looking for ways to protect and build a more sustainable business ecosystem. This initiative perfectly aligns with our mission to become an environmental friendly enterprise. Being an important member of the wood optimization industry, we are taking the lead in this respect. On a separate note, China Wood will continue to promote and enhance market recognition of its less-shaved Processed Wood Panels, while at the same time further develop its Wood Processing Procedure Service and impregnation fluids by employing more R&D specialists. In this way, the Group will be able to satisfy the strong demand for competitively priced high-quality wood panels in China. We will also strive to capture greater market share so that ultimately, the Group can deliver better mid- to long-term returns to our shareholders and customers.”
About China Wood Optimization (Holding) Limited (stock code: 1885)
The Group is principally engaged in providing a Wood Processing Procedure Service for customers with its self-developed impregnation fluid and wood processing procedure, as well as the sales of its self-produced less-shaved Processed Wood Panels. The Group’s wood processing procedure can improve the hardness, shrinkage and swelling rate, density, deformation resistance, cracking resistance, anti-corrosiveness, bending strength and elasticity of poplar wood. Its processed wood products can be used as substitutes of natural solid woods. The Group’s products are widely used to make furniture and indoor furnishing materials. Customers of the Group mainly include manufacturers of furniture, doors and window frames and wholesalers of wooden panels. For details, please refer to http://www.chinawood.com.hk/
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