Singapore, 25 February 2008 – SGX Mainboard-listed China Sun Bio-Chem Technology Group Co. Ltd, the top modified starch producer and one of the leading corn starch manufacturers in China, today announced steady performance on record revenue for the full year ended 31 December 2007.
Group achieved sales growth of 21% to RMB1.7 billion in FY2007 on rising demand which more than offset the negative effect of temporary production disruption of modified starch due to move of the production lines from Shenyang to Tongliao during the year. Sales volume increased 25% and 30% for corn starch and by-products whose average selling prices also rose 12% and 23% respectively. Supported by strong domestic demand for animal feed and corn oil, the Group was able to increase selling prices to pass on higher raw corn prices partially to customers. The new ethanol plant, which began non-fuel ethanol commercial production in May 2007, also made maiden 7-month revenue contribution of RMB29 million in FY2007.
To meet thriving demand, the Group has been actively enhancing capacity, efficiency and utilization of its facilities. Average utilization rates of corn starch, modified starch, ethanol and by-products production capacities were about 96%, 91%, 14% and 82%, respectively in FY2007. The new ethanol plant, which was in production for less than 7 months in FY2007, is expected to rise in capacity utilization as sales continued to pick up.
Group gross profit increased 6% from RMB454 million in FY2006 to RMB483 million in FY2007. Gross profit margin moderated to 29% in FY2007 from 33% in FY2006 due mainly to higher raw corn, starch and chemical prices, as well as loss registered by the start-up non-fuel ethanol segment as it offered lower initial selling price as part of its market penetration strategy and higher unit fixed cost from low utilization. The average gross margin of by-products increased significantly from 9% in FY2006 to 20% in FY2007 following the increasing demand of high value by-products like protein and germs.
Expanding business led to higher distribution costs and administrative expenses while finance costs increased mainly as a result of the accounting of amortisation costs (non-cash) of the US$100 million convertible bonds issued in October 2006.
Owing to above, total profit fell 4% to RMB271 million while basic earnings per share decreased 7% to RMB33.49 cents in FY2007.
Mr. Herman Wong, the Group’s Chief Financial Officer, noted that the Group recorded non-cash items for convertible bonds issued as a result of the adoption of an interpretation of Singapore Financial Reporting Standard (“FRS”) No.32 (revised 2004) in FY2007, which comprised amortisation costs of RMB83 million (FY2006: RMB20 million), gain from change in fair value of embedded derivative financial instruments of RMB43 million (FY2006: RMB4 million) and foreign exchange gain on convertible bonds liabilities of RMB40 million (FY2006: RMB2 million). Had the effect of these non-cash items been excluded, the Group would record an 8% decrease in total profit to RMB271.0 million in FY2007. Basic earnings per share for FY2007 would have been RMB33.50 cents after the adjustment in FY2007 as compared to RMB37.58 cents for FY2006. This accounting treatment has no impact on cash flow of the Group.
Building on strong business foundation, solid financial strength sets the Group on path for further expansion. As at 31 December 2007, the Group had cash balance of RMB927 million. Working capital amounted to RMB1.3 billion while current ratio was strong at 4.6 times. The Group also boasts healthy net cash of RMB197 million and gearing of 0.5 times.
Mr. Sun Guiji, Executive Chairman and CEO of China Sun, said, “Our Board is optimistic about our Group’s prospects as we continue to ramp up our production capacity and efficiency to boost our long-term growth. Our recent efforts in growing our capacities with the expansion and acquisition of new facilities, enhancing our capabilities with the launch of our new non-fuel ethanol products and increasing our efficiency with the streamlining of our operations had been winning moves. Recognizing that our operating environment is challenging with rising raw material prices, it spurs us to intensify our growth initiatives to capitalize on the tremendous domestic demand for our products.”
The newly acquired corn processing plant in Tieling City, Liaoning, PRC had began commercial production in 1Q2008 ahead of schedule, and is expected to add positively to sales from 2008. Utilization of this plant’s 300,000 tonnes annual corn starch capacity is targeted to reach 80% by the end of 2008. The construction and installation of the new corn sweetener production facilities at Suzhou is experiencing a delay due to the unusual cold weather in southern part of China and they are expected to be completed in 2H2008. Production will commence thereafter.
Mr. Sun added, “Demand for our non-fuel ethanol products has been promising since commercial production of this new product started in May 2007. After the initial lower-price strategy to establish our foothold in this new product segment, we expect to increase our selling price to offset the rising raw material prices and tight profit margin as the products mature and gain customer confidence. Utilisation has improved since the beginning of FY2008. Barring unforeseen circumstances, the prospects at this plant is expected to improve in FY2008 as unit costs fall with greater economies of scale. Our Group is also exploring further investments to produce downstream ethanol derivative products using our existing ethanol production facilities to enhance our profit margin.”
To reward shareholders for their unwavering support, the Company had proposed a final dividend of 0.70 cent per ordinary share for FY2007, representing 10.7% of the Group’s FY2007 net profit subject to shareholder approval at AGM.