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Chinese firms see gains but worry over costs, trade

By Kent Miller | PLASTICS NEWS CHINA

China's Hong Kong-listed plastics companies are reporting mixed results for 2016, with some helped by government infrastructure spending, while others were citing increased pressure to move to lower cost countries like Vietnam or watching for signs of potential trade wars.

Pipe-maker China Lesso Group Holdings Ltd. said in financial reports in March that mainland infrastructure spending largely drove a hefty 12.8 percent rise in sales to 17.2 billion yuan ($2.50 billion). Gross profits grew 16.4 percent to 4.58 billion yuan ($665 million).

Lesso's bread and butter is in plastic pipes and fittings -- its logo is a familiar sight outside plumbing shops across China. Year-to-year sales in this sector climbed 8.4 percent to 14.7 billion yuan ($2.14 billion).

Sales of building materials and interior design products, including doors and windows, rose a healthy 13.4 percent to 1.01 billion yuan ($147 million).

It reported gains from its push into a new business. Sales at Lesso Mall, its two-year-old e-commerce platform, leaped 63.9 percent to 1.02 billion yuan ($148 million).

Lesso said it has acquired land in the United States, Canada, Australia and Thailand as part of a long-range plan to push Lesso Mall into global markets. The group also plans to establish Lesso Home, a global platform for building materials and interior design products.

While the growth rate in the Chinese economy was 6.7 percent last year, down from double-digit growth a few years ago, the Shunde, Guangdong Province-based Lesso seems to be emerging as a natural beneficiary of Beijing's infrastructure push.

For example, last May, key ministries and 14 cities, including Beijing and Shanghai, inaugurated "Sponge City" projects to boost flood control and water recycling. The company said additional strong opportunities are presented by new wastewater-treatment plants in the government's current Five Year plan, totaling 582.9 billion yuan ($84.7 billion).

At mold maker and processor TK Group Holdings Ltd., whose flagship factory is in Shenzhen, sales registered a much more modest gain of 1.5 percent to HK$1.63 billion (US$209 million).

The company told the Hong Kong stock market that gross profits were up 2 percent to HK$456 million (US$58.7 million). Sales to the automotive segment leaped 28 percent to HK$387 million (US$49.8 million).

Commercial telecommunications equipment sales climbed 20.4 percent to HK$375 million (US$48.3 million), largely due to a new line of multifunctional devices launched by key customer Polycom, although sales to the mobile phone and wearable device sector slid 10.8 percent to HK$296 million (US$38.1 million).

TK's mold group saw sales rise 7.2 percent to HK$631 million (US$81.3 million), with a healthy bump from its ultra-large mold line, which started production in late 2014. Overall, the company's plastic-components manufacturing business slid 2.2 percent to HK$995.2 million (US$128 million).

TK said it completed construction of a second plant in Suzhou, beefing up its presence in the Yangtze River Delta region.

It said it was "highly confident" its ongoing business development would bear fruit in 2017, even as it acknowledged closely watching for any "intensified market concerns over [a] trade war caused by the ever-changing political landscape globally, sluggish economic recovery and foreign exchange fluctuation."

In the often-volatile toy business, two longtime stalwarts had opposing results.

Dream International Ltd. reported that total sales rose 18.6 percent to HK$2.15 billion (US$277 million). Dream's big business is in plush figures, but its sales of plastic figures climbed 19.8 percent for the year to HK$629.8 million (US$81.1 million).

Faced with rising mainland wages, Dream is aggressively off-shoring, even as it pushes into new product categories like dolls.

The company currently has four factories in China and another 12 in Vietnam and said it would "continue to relocate its production facilities to regions where labor costs are lower."

Last year, Dream off-shored the manufacture of ride-on toys from China to a plant in Vietnam, while another new plant in Hanoi began manufacturing plastic figures.

Citing continued growth in the U.S. and Japan, Dream said it remains "cautiously optimistic" in the face of intensified international competition and an uptick in US interest rates, according to a company statement.

Meanwhile, competitor Playmates Toys Ltd. blamed intensified competition in the boys' action figure category for a 36 percent fall-off in sales, to HK$993 million (US$128 million).

In its announcement, the 51-year-old toy company -- the first to be listed on the Hong Kong stock exchange, in 1984 -- tried to take a long view of increasing challenges to global trade.

"Despite recent outbursts of protectionist sentiments around the world, notably exemplified by 'Brexit' and the pronouncements of the new U.S. President, we do not view global trade disruption in the exporting and importing of toys as probable," the company said.

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