Tiangong International Announced 2019 Annual Results

The four core segments grew steadily. Improvement of profitability led to a substantial increase in net profit attributable to equity shareholders

Tiangong International Company Limited (“Tiangong International” or the “Group”; Stock Code: 0826.HK), the world’s leading manufacturer of high-end new materials, was pleased to announce its consolidated annual results for the year ended 31 December 2019 today.

Financial Highlights
– Revenue increased 6.9% to RMB5,370 million
– Gross profit increased 17.9% to RMB1,020 million
– Net profit attributable to equity shareholders increased 52.7% to RMB395 million

2019 is a year of growth for the Group. Total revenue increased by 6.9% to RMB5,370 million from RMB5,022 million in 2018. Gross profit increased by 17.9% to RMB1,020 million compared with RMB865 million in 2018. Net profit attributable to equity shareholders of the Company increased significantly by 52.7% to RMB395 million compared with RMB259 million in 2018. The increase was mainly attributable to the production costs reduction of our four major segments through the Group’s innovative research and development efforts and thereby increased the proportion of higher-end products with higher gross margin. In addition, the Group has been actively developing various sales channels to increase the proportion of direct sales, where an improvement in profitability was achieved.

Mr. Zhu Xiaokun, Chairman of Tiangong International, said: “In October 2019, the National Development and Reform Commission released a revised edition of the Guiding Catalog for Industrial Restructuring (2019), which lists high-performance die steel (“DS”) and high speed steel (“HSS”) and high-purity, high-quality alloy powder as government-encouraged products, giving renewed prominence to the importance of special steel. Meanwhile, against the backdrop of transforming China’s manufacturing industry and speeding up high-quality development, the Group strategically transformed its focus to the high-end product market and enhanced core competitiveness with diversified products. These allowed the Group to move from third place to second place in the rankings for DS and HSS manufacturers around the globe in the latest report issued by Steel and Metals Market Research, a World’s authoritative market research institute for iron, steel, and metal products. At the same time, the Group’s annual production capacity of HSS products has been the highest around the world for 14 consecutive years and the highest in China for 21 consecutive years. Besides, the Group is actively deploying capacity overseas. The Group’s first overseas highly automated cutting tool factory in Thailand is expected to start operating in September 2020, which will boost the Group’s capacity and efficiency. In addition, the Group has continuously expanded overseas markets and has established jointly controlled/associated sales companies in many countries and territories. TG Special Steel Co., Ltd, the Group’s first self-operated sales subsidiary company was formally founded in 2019. Driven by its integrated approach to global production and marketing, the Group will further expand its market share and reduce the uncertainty caused by trade frictions.”

All the four core segments recorded growth
The DS operation continued to be the largest contributor to Group revenue, accounting for 41.3% of total revenue. Overall increase of 5.6% in revenue of DS segment was attributable to strong market demand in both domestic and overseas markets. Revenue generated from DS segment increased to RMB2,215 million compared with RMB2,098 million in last year. As a result of a reduced average cost of rare metals, which were used as raw materials by the Group, the Group reduced slightly its selling price of DS. This resulted in a 7.5% decrease in the average selling price compared to 2018. On the other hand, the overall sales volume increased by 14.1% due to higher recognition of the Group’s products. Thanked to the high recognition and reliance on the quality of Group’s products by local customers, domestic revenue increased sharply by 14.3%, and domestic sales volume increased significantly by 26.1%. Overseas markets were relatively steady. Export sales volume increased by 2.5%.

Total sales volume of HSS remained unchanged compared to last year and the average selling price edged up for 1.2%. Accordingly, revenue generated by the HSS segment remained relatively stable at RMB791 million with a 1.2% increase compared to the same period last year. In the domestic market, the Group shifted the focus from low-alloyed HSS products to high-alloyed HSS products. With this change in product focus, domestic sales volume decreased by 4.2%, while the average selling price increased by 1.5%. Overall domestic revenue decreased by 2.7%. In overseas markets, acceptance of the Group’s products continued to increase. Export sales volume thereby recorded an increase of 13.7%. Customers of overseas markets favor HSS products with higher composition of rare metals. Due to the reduced price of tungsten in 2019, one of the rare metals specifically used in production of HSS, the average selling price of export sales decreased by 3.9%. Combining both effects, export revenue increased by 9.2%.

As for the cutting tools segment, the revenue increased by 13.1% to RMB657 million compared with RMB581 million in the same period last year. Since 2018, the Group has adopted a policy to avoid any unnecessary price wars with other small-scale production companies in the domestic lower-end market. In 2019, the Group continued to focus more on middle-end products in both domestic and overseas markets, which the market environment was less competitive. This has resulted in a reduction in the overall sales volume, but at the same time, an increase in average selling prices. In the domestic market, the sales volume decreased by 20.1%, whereas the average selling price increased by 30.5%, bringing a 4.2% increase in domestic revenue. The export business of cutting tools outperformed domestic business. With increased recognition of quality and reliability by overseas customers, orders of one of our major competitors, who was mainly engaged in OEM production of cutting tools for foreign famous brands, were considerably absorbed by the Group. As a result, notwithstanding the change in marketing policy, export sales volume only decreased by 10.3%. With a significant increase of 32.1% in average selling price, export revenue increased by 18.4%.

The revenue of the titanium alloy segment increased by 31.2% to RMB322 million compared with RMB245 million in the same period last year. Tightened environmental requirements in 2019 have stimulated demand of titanium pipes and containers in chemical industry. Also, the expansion of new customers in 2019 resulted in an overall increase of 16.2% in sales volume. Average selling price of titanium alloy products also increased by 13.0% due to the increased price of titanium sponge, a major raw material.

Outlook
Look ahead to 2020, the special steel sector will remain under pressure for the near future amid the double whammy of the Coronavirus disease (COVID-19) outbreak and international trade tensions. In fact, the Group’s supply chain and management mode are extremely flexible, which minimizes the impact of the outbreak. Also, the Group will keep searching for acquisition targets in the new material field overseas. As for the marketing strategy, the Group will keep working to increase the proportion of direct sales, reduce dependence on distributors, and provide high-quality products that are more in line with market demand. In terms of the product development strategy, the Group will develop powder metallurgy program with full strength, focusing on high-end market demands, like aviation and 3D printing, etc.

Mr. Zhu Xiaokun concluded for the Group’s future development, “China’s manufacturing industry is in an important period of transitioning from medium and low-end to high-end, and the demand for special steel is large. After the Coronavirus disease (COVID-19) outbreak is contained, the government is expected to intensify its counter-cyclical adjustments. Therefore, the future of the special steel sector is still promising. Although the trading war in overseas markets is still intense, we believe we will keep the competitive advantage with high-quality products and the increasing demand. The Group aims to lead the development of the world’s new material industry and contribute to the high-end transformation and upgrading of China’s manufacturing industry.”

About Tiangong International Company Limited
Tiangong International Company Limited (“Tiangong International” or the “Group”; Stock Code: 0826.HK), headquartered in Zhenjiang City, Jiangsu Province, is the largest manufacturer of HSS in the world, the leading manufacturer of DS and cutting tools and the third largest manufacturer of titanium alloy in China. HSS and DS belong to the special steel category, which is widely used in various industries domestically and overseas, including machinery and equipment manufacturing, vehicle production, railway and the petrochemicals industry. Meanwhile, cutting tools and titanium alloy have wide applications in different sectors, including aviation, automotive, machinery, electronics, petrochemical processing and other areas.

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