After a drastic decline in profit recorded in 2013, recently released results have shown that 2014 was not a year of revival for Hangzhou Hangyang (Hangyang).

Although experiencing a slight increase in operating revenue of 5.76% to RMB 5.8bn ($935m approx.), operating profit took another plunge of 49.7% to just RMB 162m ($26m approx.), compared with almost RMB 323m ($52m) in 2013.

Consequently, profit attributable to shareholders has also fallen another 44% to RMB 128.8m.

All of which comes against a backdrop of economic change in China. Looking toward 2015, the economy of China is entering a ‘New Normal’ – as stated by Chinese President Xi Jinping – and the growth of economy has slowed. Adjusting its structure accordingly is an unavoidable trend, Hangyang explained in its report.

The group will adjust its strategy to ‘face the situation in a positive manner’ to both continue the steady promotion of advancement and transformation of the enterprise, and to strive for better benefits and return for the shareholders.

Weak ASU demand

Breaking down the segments of Hangyang’s business, revenue from equipment manufacturing during the reporting period accounted for just over RMB 3bn (a decline of 11.13% year-on-year) and 52.3% of the group’s operating revenue – whereas operating revenue from the industrial gas business accounted for RMB 2.7bn (up 39% year-on-year) and 46.8% of operating revenue.

Revenue from engineering contract services stood at RMB 49m, an increase of almost 16% year-on-year.

A significant factor in the decline seen in the equipment business was attributed to ASU manufacture, with demand for ASUs described as ‘weak’ last year. For ASU manufacture, Hangyang’s operating revenue in 2014 fell 16.6% from that of 2013, to RMB 2.6bn. The export business dived 61% to RMB 106.5m, although it did operate at a ‘nice’ profit margin of 23%, the company noted.

The profit margin of the overall equipment manufacturing business stood at 21.4%, a drop of 1.4% compared to 2013, while the profit margin for engineering contract services in 2014 rose almost 6% to 34.77% and fell marginally to 13.3% for the industrial gas business.

Commenting on the results, the group explained that within the reporting period, the demand for air separation equipment in both the domestic and international markets is weak; further still, with the ongoing compression of over-capacity of the steel industry, some coal chemistry projects are affected by factors such as environmental protection and international oil prices.

Nevertheless, the group still won the contract for two 90,000 Nm3/h ASUs for the Jingneng project amidst ‘serious’ competition. Further, the group completed more than 30 sets of ASUs, including the design of retrofit projects and six sets of 100,000 Nm3/h ASUs for the Shenhua Ningmei project. Hangyang has also succeeded in launching standardised ASUs.

Outlook

On the industrial gas business side, Hangyang established two new gas companies in the 2014 reporting period and revenue from the gas business has exceeded that from ASU equipment business as the company realised its strategy for development.

This has continued in 2015, with February seeing the group officially establish a specialty gas research centre in Quzhou to carry out research and develop specialty gases. The centre will eventually be a production base for specialty gases.

Hangyang also revealed five new measures for the future as part of its growth strategy:

  • · Accelerate technology innovation
  • · Leverage opportunities
  • · Aim for solid targets, and respond quickly to changing market dynamics
  • · Strengthen the team of staff
  • · Quality as the priority, across management and execution