Singapore, November 13, 2008 – Luzhou Bio-chem Technology Limited, one of the PRC's leading producers of corn sweeteners, today reported that the Group's revenue increased 33.7% to RMB2.0 billion for the nine months ended September 30, 2008 (“9MFY08”). Its net profit declined 13.9% to RMB31.9 million due mainly to higher raw material costs.
“The first nine months of 2008 was a watershed period in Luzhou’s history. This was due to difficult market conditions including competitive selling prices, increase in raw material prices due to the Olympics, as well as general rising commodity prices. Nevertheless, we are optimistic that our scale of operations and capabilities will enable us to weather the current challenges and emerge stronger in the long term.” “In the meantime, we have progressively expanded our range of higher value products. We commenced production of sugar alcohol in 3QFY08 and are set to produce corn oil and amino acids in 4QFY08 and 1QFY09 respectively. With a diversified product range, we are poised to broaden our revenue streams in the quarters ahead,” commented Managing Director of Luzhou, Mr Niu Jixing .
The Group’s topline growth in 9MFY08 was mainly attributable to higher sales across all its segments, in particular from corn starch and by-products, which saw sales grew y-oy by 92.3% to RMB187.8 million and 57.6% to RMB510.1 million respectively. Revenue from corn sweeteners grew 13.9% to RMB1.2 billion in 9MFY08.
In terms of contribution by industry, revenue from the food and beverage industries saw a strong growth of 13.9% to RMB1.2 billion in 9MFY08. Although sales growth from the fermentation industry remained flat, sales from other industries saw an increase of 82.2% to RMB590.0 million in 9MFY08 due to a higher contribution from other byproducts and animal feed products. Higher prices of animal feed, coupled with an increase in the number of animal feed produce manufacturers looking at alternatives to reduce cost, have led to a stronger demand for the Group’s by-products, which are mainly sold to animal feed produce industries.
Export revenue increased 34.8% to RMB274.6 million in 9MFY08, accounting for 13.6% of the Group’s revenue.
In 9MFY08, the Group’s overall gross profit margin declined 2.5 percentage points to 9.8%, due mainly to higher prices of corn, its key raw material, which accounts for 74.4% of the Group’s cost of sales in 9MFY08. Prices of corn rose 10.0% y-o-y in 9MFY08, without the corresponding rises in the selling prices of its main products.
For the three months ended September 30, 2008 (“3QFY08”), the Group’s revenue increased 19.0% to RMB696.8 million. This was largely driven by stronger sales in corn starch and by-products, as well as contribution from its new animal feed products. Sales of corn starch and by-products grew by 42.0% y-o-y and 14.5% y-o-y to RMB61.3 million and RMB157.5 million respectively. As the demand for its corn sweeteners weakened in 3QFY08, more corn starch was sold as compared to sweeteners. Sales of its by-products also increased due to a stronger demand from animal feed produce industries.
Outlook & Strategies
The Group’s plans to expand capacity and enhance its operations are on track. Its new production lines for sugar alcohol commenced production in 3QFY08, while its new production lines for corn oil commenced production in 4QFY08. The Group’s project on amino acids is scheduled to commence production in 1QFY09.
The Group also recently announced the set up of a joint venture company with Wuhan Jiabao Sugar Co., Limited. Upon commencement of operations, it is expected to enhance the Group’s marketing reach to the southern region of the PRC.
Looking ahead, the Group expects the prices of its key raw material – corn – to remain stable or decrease slightly in the near term.
“We have observed that the closure of some inefficient corn sweetener manufacturers in the PRC will lead to consolidation of the industry. This will have a positive impact on the available supply of corn sweeteners in the market, and will allow us to strengthen our market position while we continue to focus on increasing our sales. We will also continue our efforts to improve our manufacturing efficiency and increase our product lines, which we believe will place us in a favourable position in 2009,” said Mr Niu.
The Group will remain cautious in view of the global economic crisis.