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31-10-2011, 08:19 AM
For this week, it is Lizhong Wheel.
The Straits Times
Oct 31, 2011
EYE ON... LIZHONG WHEEL GROUP
Wheel-maker on the road to growth
Chinese S-chip firm has almost quadrupled its production capacity since listing in 2005
By Jonathan Kwok
Like the roadworthy wheels that it makes, Singapore-listed Lizhong Wheel hopes it has what it takes to last the distance - and achieve long-term growth.
The booming car market in China has given a boost to many knock-on industries and firms, including Lizhong.
The company, which makes aluminium alloy wheels for cars, is on a roll and has almost quadrupled its production capacity since its listing here in 2005.
It reckons it is the largest maker of aluminium wheels in China, and can produce 8.7 million wheels a year. An upcoming plant in Thailand will boost this.
That is nothing to be sniffed at, but the firm's growth has not saved its investors from a roller-coaster ride these past few years.
The firm listed here at 36 cents per share in October 2005 - one of the first few China-based companies to list here.
Things soon picked up, as the enthusiasm over these firms - known as S-chips - rose soon after. Shares in the company, known at that time as China Wheel before it took on its present name in 2008, hit a whopping $1.25 in July 2007.
But things soon took a turn for the worse, as the global financial crisis walloped stock markets and some startling governance failures were uncovered at some S-chips in the ensuing chaos.
That hammered sentiment in the S-chip sector. Lizhong did not escape as its share price tumbled, and its last traded price is 24.5 cents.
The stock is also trading below the net asset value per share of 2.52 yuan or 50 Singapore cents, noted Lizhong chairman Zang Ligen.
'On the other hand, our Shenzhen-listed peer Zhejiang Wanfeng, which recorded similar revenues and earnings for last year, is trading at a price-earnings ratio of 24 times, versus Lizhong at 4.7 times,' he added. Price-earnings is a popular measure of share value - the higher the ratio, the better the valuation.
The firm has a market value of $57.6 million, way below its peak of more than $290 million in 2007. Nowadays, the stock is also plagued by thin liquidity, with only a handful of lots - if any - changing hands daily. Mr Zang would like to see more liquidity for the stock, as 'fair valuations cannot be achieved without enough liquidity'.
He highlighted the fact that in the previous financial crisis, Lizhong remained profitable, though earnings fell by about half from 2007 to hit 53.4 million yuan in 2008. Net profits were 43.3 million yuan in 2009 before almost trebling to 125.8 million yuan last year.
'2008 and 2009 were a challenging period for the whole auto supply chain,' said Mr Zang. Cost-cutting measures helped the firm through, as did its research and development to produce lighter, yet safe and affordable wheels that can improve vehicles' fuel efficiency.
In terms of corporate governance, Lizhong has also set up a management committee since listing to help the board in coordinating, supervising and managing the operations of the firm.
The creation of such a committee is not a requirement by the Singapore Exchange, Mr Zang noted.
Since July 2006, Lizhong has also put in place a whistle-blower policy to encourage staff to report any financial irregularities and illegal activity to the audit committee via e-mail. The committee will protect the identity of these staff.
In the seven years since it listed, Lizhong has not raised capital through the equity market so as not to dilute shareholders' holdings, said Mr Zang.
On the other hand, it has been paying out dividends consistently, except for 2008 and 2009 during the slowdown. There is no fixed dividend policy. Payouts for last year were five fen, while for 2007 it paid out 7.2 fen. Payouts for 2006 were seven fen, and 6.8 fen for 2005.
Mr Zang also emphasised that the firm has always been able to pay off its debt, even in the 2008 to 2009 recession.
The company is rolling ahead with expansion plans. It has six wheel-making plants and one mould plant in China, and started building a wheel plant in Thailand in the middle of last year.
The Thai plant, with an initial capacity of one million wheels every year, will help it augment its overseas presence, selling products to markets such as Europe, and the United States, after starting operations in December. By the end of next year, Lizhong plans to raise the Thai plant's capacity by another 50 per cent.
With most of the major automakers having set up shop in Thailand, the country seemed the natural choice for Lizhong's first overseas manufacturing plant, said Mr Zang. He added that aluminium alloy wheels made in Thailand typically command higher prices in the international markets.
jonkwok@sph.com.sg
This is a series of interviews with the head honchos of Chinese companies listed here.
The Straits Times
Oct 31, 2011
EYE ON... LIZHONG WHEEL GROUP
Wheel-maker on the road to growth
Chinese S-chip firm has almost quadrupled its production capacity since listing in 2005
By Jonathan Kwok
Like the roadworthy wheels that it makes, Singapore-listed Lizhong Wheel hopes it has what it takes to last the distance - and achieve long-term growth.
The booming car market in China has given a boost to many knock-on industries and firms, including Lizhong.
The company, which makes aluminium alloy wheels for cars, is on a roll and has almost quadrupled its production capacity since its listing here in 2005.
It reckons it is the largest maker of aluminium wheels in China, and can produce 8.7 million wheels a year. An upcoming plant in Thailand will boost this.
That is nothing to be sniffed at, but the firm's growth has not saved its investors from a roller-coaster ride these past few years.
The firm listed here at 36 cents per share in October 2005 - one of the first few China-based companies to list here.
Things soon picked up, as the enthusiasm over these firms - known as S-chips - rose soon after. Shares in the company, known at that time as China Wheel before it took on its present name in 2008, hit a whopping $1.25 in July 2007.
But things soon took a turn for the worse, as the global financial crisis walloped stock markets and some startling governance failures were uncovered at some S-chips in the ensuing chaos.
That hammered sentiment in the S-chip sector. Lizhong did not escape as its share price tumbled, and its last traded price is 24.5 cents.
The stock is also trading below the net asset value per share of 2.52 yuan or 50 Singapore cents, noted Lizhong chairman Zang Ligen.
'On the other hand, our Shenzhen-listed peer Zhejiang Wanfeng, which recorded similar revenues and earnings for last year, is trading at a price-earnings ratio of 24 times, versus Lizhong at 4.7 times,' he added. Price-earnings is a popular measure of share value - the higher the ratio, the better the valuation.
The firm has a market value of $57.6 million, way below its peak of more than $290 million in 2007. Nowadays, the stock is also plagued by thin liquidity, with only a handful of lots - if any - changing hands daily. Mr Zang would like to see more liquidity for the stock, as 'fair valuations cannot be achieved without enough liquidity'.
He highlighted the fact that in the previous financial crisis, Lizhong remained profitable, though earnings fell by about half from 2007 to hit 53.4 million yuan in 2008. Net profits were 43.3 million yuan in 2009 before almost trebling to 125.8 million yuan last year.
'2008 and 2009 were a challenging period for the whole auto supply chain,' said Mr Zang. Cost-cutting measures helped the firm through, as did its research and development to produce lighter, yet safe and affordable wheels that can improve vehicles' fuel efficiency.
In terms of corporate governance, Lizhong has also set up a management committee since listing to help the board in coordinating, supervising and managing the operations of the firm.
The creation of such a committee is not a requirement by the Singapore Exchange, Mr Zang noted.
Since July 2006, Lizhong has also put in place a whistle-blower policy to encourage staff to report any financial irregularities and illegal activity to the audit committee via e-mail. The committee will protect the identity of these staff.
In the seven years since it listed, Lizhong has not raised capital through the equity market so as not to dilute shareholders' holdings, said Mr Zang.
On the other hand, it has been paying out dividends consistently, except for 2008 and 2009 during the slowdown. There is no fixed dividend policy. Payouts for last year were five fen, while for 2007 it paid out 7.2 fen. Payouts for 2006 were seven fen, and 6.8 fen for 2005.
Mr Zang also emphasised that the firm has always been able to pay off its debt, even in the 2008 to 2009 recession.
The company is rolling ahead with expansion plans. It has six wheel-making plants and one mould plant in China, and started building a wheel plant in Thailand in the middle of last year.
The Thai plant, with an initial capacity of one million wheels every year, will help it augment its overseas presence, selling products to markets such as Europe, and the United States, after starting operations in December. By the end of next year, Lizhong plans to raise the Thai plant's capacity by another 50 per cent.
With most of the major automakers having set up shop in Thailand, the country seemed the natural choice for Lizhong's first overseas manufacturing plant, said Mr Zang. He added that aluminium alloy wheels made in Thailand typically command higher prices in the international markets.
jonkwok@sph.com.sg
This is a series of interviews with the head honchos of Chinese companies listed here.
My Value Investing Blog: http://sgmusicwhiz.blogspot.com/
