China’s fluorochemical industry: transformation and upgrading makes results in 2015

  Source: Internet

   In Q2 2016, the Chinese listed fluorochemical companies successively released their full-year 2015 financial reports. Accordingly, most of the companies reversed the declines and stabilised their performances. In particular, some companies achieved significant growths in profit, since they continuously carried out transformation and upgrading, including product structure optimisation (into downstream deep processing), new/ modified material development and new application exploitation. For instance, Do-Fluoride Chemicals Co., Ltd. (Do-Fluoride) and Zhejiang Yongtai Technology Co., Ltd. (Zhejiang Yongtai) recorded a rise of 310.51% and 72.69% YoY in net profit.

  
In order to make it clear about the domestic fluorochemical industry status quo and development trend, analyst CCM specifically selected 4 leading listed companies to make analysis on their financial figures in 2013-2015, with regard to the overall performance, profit, assets, debt risk, R&D input and projects under construction.

  
The 4 companies are Do-Fluoride, Shanghai 3F New Materials Co., Ltd. (Shanghai 3F), Zhejiang Juhua Co., Ltd. (Zhejiang Juhua) and Zhejiang Yongtai.

  
I Overall performance

  
1. Revenue growth rate (fluorochemical business only)
Zhejiang Juhua and Zhejiang Yongtai realised considerable growths in 2015, by 4.43% and 20.27% YoY respectively, signalling rises in 2 consecutive years. By contrast, Shanghai 3F and Do-Fluoride showed negative results, by -1.24% and -0.03%. Notably, Do-Fluoride improved significantly compared to -5.24% in 2014.  

  
This to certain extent meant that the domestic fluorochemical industry was recovering in 2015.   
Specifically,

  
- Zhejiang Yongtai: thanks to the rises in sales from fluorine-enriched refrigerants (up by 13.76%) and fine fluorochemicals (up by 7.52%)

  
- Zhejiang Yongtai: mainly involved in fine chemicals business (specifically the fluorobenzene series), comprising 3 categories based on different applications, namely agrochemicals, pharmaceutical chemicals and liquid crystal chemicals.

  
In the context that the downstream industries went up continuously, the company vigorously expanded the market at home and abroad, by largely improving the production and sales scales. In 2015, the said 3 product categories recorded a rise of 2.05%, 20.15% and 29.52% separately in sales. The combined output and sales volume was up by 17.78% and 16.01% respectively.

  
2. Capital maintenance and increment ratio

  
The 4 listed fluorochemical companies attained certain increases. Of this, Zhejiang Yongtai recorded the highest, at 136.49%, whilst Zhejiang Juhua maintained the lowest, at 102.63%, despite the growth from 92.82% in 2014. This indicated that Zhejiang Juhua, in recent two years, has fallen behind in capital maintenance and shareholder equity growth.

  
According to CCM's research, Zhejiang Juhua made the rise by:

  
Notably, the new projects launched by Zhejiang Juhua for premium-oriented development, were mostly under investment and construction in 2015, yet to bring scaled effect. This also led to its fairly low capital maintenance and increment ratio.

  Revenue growth rate, 2013–2015

  Source: Company reports & CCM

  Capital maintenance and increment ratio, 2013–2015

  Source: Company reports & CCM

  
II Profit

  
1. Gross profit margin (fluorochemical business only)

  
Do-Fluoride and Zhejiang Juhua, despite small fluctuations, kept relatively stable in gross profit margin, whilst Shanghai 3F saw a fall of 2.54 percentage points YoY.

  
In particular, Shanghai 3F was the only company amongst the 4 selected ones that suffered losses in 2015, at -USD47.63 million (-RMB307.51 million, vs. +USD7.61 million (RMB49.14 million) in 2014). This is mainly because:

  
Averagely, the gross profit margin of the aforementioned 3 companies was only 15.34% (vs. averaged about 17% for domestic basic chemicals industry). This meant that the domestic fluorochemical industry did not make satisfactory profit, even though it was at a recovery. This can be mainly ascribed to the severe overcapacities of mainstream products, such as hydrogen fluoride (HF), aluminium fluoride (AlF₃), fluorine-enriched refrigerants and fluoropolymer.

  Gross profit margin, 2013–2015

  Source: Company reports & CCM

  Zhejiang Yongtai outshone the other 3 companies, specifically regarding the gross profit margin, and maintained upturns (from 23.30% to 32.20%) in 2013-2015.

  
This is mainly because Zhejiang Yongtai has been dedicated to the fine fluorochemicals business and has made innovations in application (for pharmaceuticals, pesticides and liquid crystal materials), which has brought more opportunities to the company. Meanwhile, the company has focused on extending and expanding the supply chain based on its advantaged products, to continuously strengthen its competitiveness and voicing power in the market. Accordingly:

  
In reality, if the domestic fluorochemical companies intend to get out of the dilemma (low gross profit margin), they should actively exploit the emerging markets, in addition to continuing extending the supply chain and developing premium-marketed products.

  
Take Do-Fluoride for example. It has marched into the Li-ion battery key materials (such as electrolyte and cathode materials), power Li-ion battery and alternative energy vehicle businesses, based on its lithium hexafluorophosphate (LiPF₆) production capacity layout. It aims to specifically build a business of alternative energy, following the fast development of the said emerging markets. According to CCM's research, Do-Fluoride achieved a rise of 143.25% in its sales from alternative energy business in 2015. The corresponding gross profit margin was up to 33.82%.

  
2. Return on common shareholders' equity (ROE) and return on total assets (ROA)

  
Almost literally, Zhejiang Yongtai was in the lead, at 7.87% and 7.32% separately. This showed its better business operation and profitability than the other 3 companies in 2015.

  
Driven by the alternative energy business, Do-Fluoride also made rapid improvements regarding the 2 indices, at 1.58% and 2.86% (vs. 0.47% and 1.81% in 2014).

  ROE and ROA, 2013–2015

  Note: ROE stands for return on common shareholders' equity;
         ROA stands for return on total assets.
Source: Company reports & CCM

  
III Assets

  
1. Assets turnover (fluorochemical business only)
Except Zhejiang Juhua, the other 3 companies presented varied declines. This manifested that Zhejiang Juhua performed fairly well in view of operating efficiency, sales capability and assets utilisation efficiency.

  
The average figure of the 4 companies was only 43.26%, which to certain degree reflected that the domestic fluorochemical industry in fact did not do a good job in production and sales. Notably, the average figure of the petrochemical industry was over 100%, according to statistics.

  
2. Receivables turnover (fluorochemical business only)
Zhejiang Juhua still maintained a relatively high level (at 1131.78%), in the context that the 4 companies all showed falls. In light of the higher figures given by Zhejiang Juhua, it can be concluded that the company was able to use funds at higher efficiency and was more capable of debt repayment.

  Assets turnover, 2013–2015

  Source: Company reports & CCM

  Receivables turnover, 2013–2015

  Source: Company reports & CCM

  
IV Debt risk

  1. Balance ratio
Do-Fluoride and Shanghai 3F witnessed small falls, whilst Zhejiang Yongtai realised a slight rise. Specifically, Zhejiang Juhua was the one holding the lowest balance ratio, at 9.87% only.

  
The average figure was 17.13%. Compared to that of about 56% for the overall chemical industry, the fluorochemical segment performed well in business operation and risk control.

  
However, this also signalled that the domestic fluorochemical industry was not active enough and still under stable operation. The ever development pattern involving continuous production expansion and business operation under large debts, is not applicable to the current industry. The trend to develop "premium, refined and specialised' products should be a necessity.  

  
2. Times of interest earned
Except Shanghai 3F of which the figure was negative due to the loss, the other 3 companies all achieved growths. This meant that the domestic fluorochemical industry overall enhanced the capability to repay debts. Still, Zhejiang Juhua recorded the highest level, at 8.78.

  Balance ratio, 2013–2015

  Source: Company reports & CCM

  Times of interest earned, 2013–2015

  Source: Company reports & CCM

  
V R&D input

  
In light of the proportion of R&D input in revenue from fluorochemical business, Do-Fluoride and Shanghai 3F respectively made up 4.89% and 4.68%, up by 1.18 and 1.24 percentage points, marking leading growths in the industry. This mainly came from their investments into downstream projects in 2015.

  
Though Zhejiang Yongtai presented falls, the figure at 6.07% still got a good lead in the industry. Actually, the company should maintain the investment into its fine fluorochemicals business which is oriented by technology, to keep the competitiveness.

  Proportion of R&D input in revenue from fluorochemical business, 2013–2015

  Source: Company reports & CCM

  
VI Key projects under construction

  
According to CCM's analysis on the projects under construction:

  Key projects under construction in 2015

  Source: Company reports & CCM

  The article comes from China Fluoride Materials Monthly Report, 1605.

  For more information about fluoride in China, go to CCM's Online Platform.

  About CCM:

  CCM is the leading market intelligence provider for China's agriculture, chemicals, food & ingredients and life science markets. Founded in 2001, CCM offers a range of data and content solutions, from price and trade data to industry newsletters and customized market research reports. Our clients include Monsanto, DuPont, Shell, Bayer, and Syngenta. CCM is a brand of Kcomber Inc.

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