SINGAPORE (May 3): Delong Holdings, the China based steel manufacturer and trader, reported 1Q18 earnings fell 27.6% to RMB 280.8 million ($58.9 million) compared to RMB 387.8 million in 1Q17.
Revenue for the first quarter ended March came in at RMB 2.95 billion, 1.2% lower than RMB 2.99 billion in the previous year, due to a significant decrease in sales volume during the period under review, despite a significant increase in average selling prices of hot-rolled steel coil (HRC) sold.
The group recorded lower production volume in 1Q18 mainly due to the cessation of operations at the group’s subsidiary, Laiyuan County Aoyu Steel Co. since Aug 2017 in addition to the shutdown of two out of Delong Steel’s three blast furnaces due to the government’s environmental policies.
Cost of sales was 2.1% higher at RMB 2.51 billion from RMB 2.46 billion last year, due to higher raw material prices, such as coke, coal and steel scrap, for production, despite lower sales volume in 1Q18.
There was also higher repair and maintenance expenses incurred by the group’s production facilities as well as higher wages in 1Q18.
Hence, gross profit for 1Q18 was RMB 440.6 million, 16.6% lower than RMB 528.4 million a year ago.
During the quarter, the group also incurred other losses of RMB 6.24 million, compared to other gains of RMB 10.2 million last year.
Distribution and marketing expenses dropped by 75.2% to RMB 6.88 million mainly due to a decrease in transportation costs associated with the delivery of Aoyu Steel’s HRC products to customers in China following its shutdown.
Administrative expenses however increased by 42.8% to RMB 99.1 million from a year ago, due to R&D expenses incurred, staff welfare contribution as well as sewage and environmental impact assessment fees incurred to comply with the increasingly strict regulations.
As at March 31, group cash and cash equivalents stood at RMB 1.55 billion.
On its outlook, Delong will continue to explore earnings-accretive acquisitions or investments for the long-term benefit of shareholders.
Accordingly, to further diversify incomes streams, the group may invest in quoted or unquoted securities, as well as the provide seed and mezzanine capital to private companies with growth potential and undertake business incubation.
The group also plans to diversify into asset management business in due course, subject to obtaining the type 9 Licence by the Securities and Futures Commission of Hong Kong.
Shares in Delong closed at $4.20 on Thursday.
