Extracted from Annual Report 2016
The year in review was a challenging period for the Group. With China rebalancing its economy from an investment-driven growth to a consumption-based growth, the investment slowdown has affected key pillars of the economy such as the property and construction market. This has continued to negatively impact the domestic demand for construction equipment including towercranes industry in the PRC.
Apart from the slowdown in the PRC market, the rest of our markets are also facing headwinds in their respective operating environments as a result of the less than favourable situation globally. In the midst of an uncertain economic climate and uneven growth across major economies, we have focused on building our research and development capabilities as one of the leading designers and manufacturers of large towercranes, components and accessories.
The Year in Review
Financial year 2016 ("FY2016") started poorly where the Group made a net loss of RMB 7.4 million in the first quarter of FY2016. Nevertheless, through hard work and determination against a backdrop of unfavourable business climate, the Group was able to rise to the challenge and to register a small net profit attributable to shareholder of RMB 3.9 million for FY2016.
The sudden unexpected recovery in China's residential property market since late last year has been a rare bright spot in the world's second-largest economy, which has been slowing amid weak demand at home and abroad, cooling investment and excess industrial capacity. Sizzling home price in China's biggest cities such as Beijing, Shanghai, Guangzhou and Shenzhen showed signs of easing in May 2016 but sharp gains appear to be spreading to smaller cities, making policymakers' job harder as they look to support the faltering economy without inflating bubbles. Average new home prices in 70 major cities climbed 6.9 percent in May from a year ago, accelerating from April's 6.2 percent rise, according to Reuters calculations based on data from the National Statistics Bureau (NBS).
Nevertheless, overall prices in second-tier cities were still well below those in top cities and throughout China, especially the smaller second and third tier cities still have a glut of unsold homes. Despite the higher property prices, residential project developments continue to be slow with most developers staying side lined. As such, demand for construction machinery and equipment including towercranes for residential projects remain muted for FY2016.
Towercranes used for infrastructure projects, such as coal-fired power plants, nuclear power plants, bridges, airports and large-sized commercial building developments continued to be the main focus of the Group. Coal-fired power plants have propelled much of China's economic rise for decades, helping make the nation the world's biggest emitter of greenhouse gases. Even with economic growth slackening, and other energy sources taking hold, new coal plants have been added. The government announcement also calls for an acceleration of the closing of outdated coal-fired plants that use older, dirtier technology and as part of China's effort to renew its power plant and energy needs, more efficient power plant projects are in the pipeline. In 2015, our STT2200 was used in the construction of power plants in Shandong, Anhui, Inner Mongolia, Fujian and Guangzhou. The Group also successfully deployed the STT2200 into Guangzhou Yangxi power plant project (广州火电阳西厂). This heavy duty tower crane has a maximum lifting capacity of up to 100 tonnes ideal for complex infrastructures such as power stations.
The release of China's '13th Five-Year Plan' in 2015 has attracted worldwide attention and sparked a buzz as it lays out the development guidelines and targets of the world's second-largest economy over the next five years, whose development and prosperity will benefit the world as a whole. Economic development remains China's top priority. Against the backdrop of increasingly intertwined relations with the international community, China, with such a blueprint, will remain a dynamic engine of the global economy in the next five years. What's more, China has made the 'Belt and Road initiative' part of its five-year plan, which demonstrates the Chinese government's determination to promote pragmatic and win-win cooperation among countries along the routes, and to create a new opening-up pattern towards both the East and the West.
Together with the Belt and Road initiative, the Asian Infrastructure Investment Bank (AIIB) initiated by China plays an active role in financing infrastructure projects in Asia, and will promote the sustainable development of the region. This has presented a good opportunity for Chinese companies such as our Group to participate in these government-led initiatives and to further our product coverage together especially in the building of infrastructure projects under the Belt and Road initiative. Under this initiative, our cranes has been used in Pakis tan for the power plant infrastructure projects.
Breakthrough in Taiwan Market
In the previous financial years, the Group started executing our long-term strategy of delivering sustainable growth through market diversification. This year, we continued this effort to cultivate a broad base of customers across different geographies in order to reduce reliance on our core market in the PRC.
In 2015, we are proud to be one of the first Chinese towercranes manufacturer to have penetrated the Taiwan market, a market previously dominated by Western towercranes manufacturers. Our luffing cranes STL420-24T was commissioned for a residential project and STL660-32T were successfully used in the expansion project for the renowned Fu Jen Catholic University FJU (台湾辅仁大学). More Yongmao towercranes were subsequently mobilised in Taiwan. As our product and brand name continue to gain market recognition and traction we are confident that the Taiwan market will feature more significantly in our future. With more stringent regulation enforced on the age of towercranes and more focus on industrial safety, the market is likely to see more replacement demand potential for quality cranes and hence more opportunity to increase our market share in Taiwan.
As part of our strategy to penetrate the Taiwan market, we will continue to offer quality crane rental and maintenance services, as well as increase our marketing efforts and brand exposure in major key trade fairs. We believe that our presence in Taiwan will eventually translate to crane sales and long-term growth momentum.
Continuous Innovation & Design
Continuous innovation and developing state-of-the-art towercranes is an important aspect of our business and in line with our strategy of building and leveraging on our brand reputation. Our business revolves around maintaining our competitive edge through innovation and strong research and development. Our team of dedicated designers and engineers are constantly developing state-of-the-art towercranes which are in line with global standards.
Development and change in the const ruction method is seeing a growing demand for larger-sized towercranes with higher lifting capacity. For the year under review, the Group successfully designed and developed various new models of towercranes catering to the ever growing needs of our customers and the developments in the construction industry. In FY2016, we successful launched 4 new models, the STT373, STL460C, STL660C and STT2200 cranes which received good market reviews with regards to product quality and design. We are pleased to announce that our latest product and one of the world biggest flattop towercranes, the STT3330 has been developed to cater to the lifting requirement of mega infrastructure projects such as power plants. With a maximum lifting capacity of 160 tonnes and working radius of 85m, this mega-size crane has propelled the Group to the forefront of the towercranes industry. The STT3330 was designed using engineering analysis and simulation software leading to more accurate design calculation and shorter design lead time. Ease of installation and erection features are also a strong selling point of this crane. We have successful launched the STT3330 which has received good feedback in terms of its capability and performance.
As a testimony to the Group's designing and manufacturing capabilities, Yongmao was once again recognised as one of the Top 10 manufacturers of towercranes in China and one of the Top 50 Construction Machinery Manufacturers by the China Construction Machinery Association (中国工程机械工业协会).
As part of our initiative to further reinforce our positon as a leading towercranes player in the market, and maximise the potential of our facilities, we are currently planning to set up a new satellite Design Centre in Shenyang. The new facility will significantly improve our ability to attract top designers, due to its proximity to universities and technical colleges to join the design team, especially in the designing and manufacturing of larger-sized towercranes used in major construction projects such as skyscrapers and power stations.
The Group will continue to effectively manage operating costs and business risks to remain competitive. It will also continue to explore strategic collaborations and leverage on its research and design capabilities and track record as a leading towercrane manufacturer, design specialist and solution provider to target complex and high value projects to grow the business further.
At Yongmao, we consider our human capital as indispensable towards sustainability and progress. This is why the aforementioned strengthening and setting up of our satellite Design Centre in Shenyang is expected to enhance our capacity for independent innovation and to attract top talent. The Group also places strong emphasis on the training of its employees to improve technical capability so as to provide better services to our customers.
In our continuous efforts to spur product design towards international levels, we will further optimise and upgrade our products and accelerate the implementation of smart manufacturing initiatives to improve production standards.
Moving forward, we continue to unlock new avenues of building a sustainable and thriving business. Against such a dynamic background of economic activity, we will continue to effectively manage costs, develop marketing and brand strategies, and extend our strategy of creating value for our customers. This is in line with our vision to build the Yongmao brand into an innovative and competitive corporation.
On behalf of the Board, I like to express my appreciation to the directors, management team and employees at Yongmao for their contribution and continued support for the Group. We also like to extend our gratitude to our business partners and associates whose trust and support are pivotal to our commitment towards success and greater value.
Together, we look to continue to build on our strengths and steer Yongmao into a sustainable direction towards the future.
Sun Zhao Lin