Yip Chemical : Announces 2017 Interim Results

• Mainly driven by the solvents business, the total product sales tonnage continued to grow to approximately 590,000 metric tons, up 9% year-on-year.

• Achieved revenue close to HK$4.5 billion, up 18% year-on-year.

• Gross profit margin of coatings and inks businesses under pressure from surge of major raw material costs, and in turn the Group's overall gross profit was affected.

• With the Group's cost control efforts, profit attributable to owners dropped by a mild 5% to approximately HK$53.6 million.

• The Board recommended the payment of an interim dividend of HK5 cents per share.

(Hong Kong, 15 August 2017) ─ Yip's Chemical Holdings Limited (HKEX: 00408) ("Yip's Chemical" or the "Group"), the world's largest manufacturer of acetate solvents and one of China's largest manufacturers of petrochemical products, has announced its interim results for the six months ended 30 June 2017 (the "review period").

During the review period, the Group's overall sales volume continued its upward trend and recorded a year-on-year growth of 9%. Revenue also increased 18% to close to HK$4.5 billion. The substantial increase in raw material prices and the lagging effect of corresponding product price increase led to the decline in gross profit margin of the coatings and inks businesses, consequently dragging down the overall gross profit of the Group. Nevertheless, as the Group strived to lower costs and Renminbi remained relatively stable, profit attributable to owners was only slightly down by 5% to HK$53.6 million. Moreover, as the Group remained prudent in the use of funds, the gearing ratio was maintained at a healthy level of less than 60%. The Board has resolved to declare an interim dividend of HK5 cents per share (same period in 2016: HK5 cents per share).

Solvents

During the review period, driven by the substantial increase in export sales, the overall product sales tonnage of the solvents business rose by 12% to almost 480,000 metric tons. With the rise in solvent prices, revenue surged by 34% to approximately HK$3 billion. Besides, thanks to the greater economies of scale effect, operating profit increased by 27% year-on-year to HK$132 million.

As the capacity utilization rate of all the product lines exceeded 90%, the management is actively considering the opportunities of enhancing the product mix and expanding the production capacity of the existing products, including the feasibility of developing the nearly 80 "mu" (畝) of land at the Taixing factory in Jiangsu with completed infrastructure. In the long run, the Group intends to actively contemplate the use of resources for the solvents business while exploring mergers and acquisitions in the upstream businesses or with its peers, so as to continue to realize economies of scale effect.

Coatings

During the review period, the rises of raw material prices had a major impact on the coatings business. Consequently, the gross profit margin declined by 9 percentage points year-on-year to 24%; operating profit dropped by 70% to HK$4.6 million, compared to the same period last year. Industrial coatings segment successfully executed strategic consolidation leading to an uplift of its product sales tonnage and revenue by 6% and 3% respectively. Benefiting from the better product mix, including the increased ratio of environmentally-friendly emulsion paints with higher profit margin in the architectural paints segment, the impact on gross profit margin brought by the substantial increase in raw material prices was mitigated in the architectural paints segment.

The Group has engaged an internationally-renowned consulting firm to conduct a 30-week process optimization project, with the aim to enhance operational efficiency and lower operational costs. With the tapering off of soaring raw materials costs and more solid business fundamentals in place, the Group is cautiously optimistic about the performance of the coatings business in the second half of the year.

Inks

In the first half of the year, the revenue of the inks business amounted to HK$627 million,

down by 5% compared to the same period last year. During the period, the gross profit of the inks business was also suppressed by the acute raw material cost increases with gross profit margin dropping by 5 percentage points, leading to a reduction of operating profit by 59% to HK$19.7 million.

As the costs of raw materials began to stabilize in recent months, coupled with gradual adjustments of product prices to incorporate the rising costs, the Group expects that the profitability of the inks business will improve in the second half of the year. Moreover, the Group will gradually introduce environmentally-friendly ink products to actively seize market opportunities when the market dynamics become more favourable.

Lubricants

The management team actively expanded the higher tier automotive engine oil business, which already started to yield early success in the past year. As such, gross profit margin registered a slight increase despite the increase in raw materials prices. The Group's strategies of segment focus coupled with its stringent business management procedures contributed to a significant cost reduction, which in turn enabled funding for the brand revitalization of Hercules lubricants, and hence narrowed operating loss to approximately HK$450,000.

The management will continue to reinforce the brand image of Hercules lubricants and its position in the automotive engine oil market while strengthening the distribution channels, in order to capture more customers and a greater market share.

In late 2016, the Group purchased a property in Wanchai, Hong Kong Island to serve as a new office at a price of HK$130 million and it moved to the new address in the first half of this year. At the same time, the entire building of the Group's former headquarters in Fanling, New Territories has been successfully leased and generated reasonable rental returns.

- End -

Yip's Chemical Holdings Limited ("Yip's Chemical" or the "Group"), formerly known as Hang Cheung Hong, was established in 1971 and listed on the Hong Kong Stock Exchange in 1991. The Group focuses on the production and sales of petrochemical products, including solvents, coatings, inks and lubricants. It is the largest producer of acetate solvents in the world, China's largest manufacturer of inks and one of the leading coating brands in the country.

The Group, headquartered in Hong Kong, operates various manufacturing plants across China and has a nationwide sales network covering all major provinces and cities. Brands operated under the Group include "Bauhinia" for paints, "Bauhinia Variegata" for inks, "Hang Cheung Coating" for industrial paints, "Hercules" for automotive lubricants and "Pacoil" for specialty lubricants.

Yip's Chemical is a constituent in the MSCI (Morgan Stanley Capital International) China Small Cap Index Series. For more information, please visit www.yipschemical.com.

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