Yunwei Marches forward in Performance through Readjustment

Owing to its net profit growth of 223.45% year on year, Yunnan Yunwei Company Ltd. (Yunwei, SH: 600725) already holds the first place in the 2005 performance statement fortune list. How can the company manage to achieve the drastic performance growth? Can the rapid development trend last long? What are the future performance growth points?    With these questions in mind, the reporter has recently gone to Yunnan Qujing and made an interview with managers of Yunwei.    According to a senior executive of the company, the drastic performance growth is mainly the result of the following 3 factors. First of all, the overall situation of chemical sectors has seen a smooth improvement. The market demand of some chemical products considerably increases. It can also be seen from the performance of some other similar listed companies. Secondly, the company has purchased the co-production soda unit from the parent company Yunwei Group. The unit was included in the performance statement for half a year and the sales revenue in the company increased by RMB190 million.    The most important factor is that the company has readjusted the portfolio of finished products and intermediate products. In the past the company mainly sold finished product polyvinyl alcohol and used upstream product vinyl acetate as raw material for the polyvinyl alcohol production. The production of vinyl acetate was therefore determined by the demand of polyvinyl alcohol. The market demand of vinyl acetate had a drastic increase in 2005. The company management made quick response to the market change, resolutely readjusted the production plan, fully tapped the capacity of vinyl acetate and started the sales of vinyl acetate as an independent commodity. The sales revenue from this move alone was RMB74.8 million. Instead of making a reduction, the sales amount of polyvinyl alcohol was increased by 15.4%. After the readjustment of the product distribution, the proportion of polyvinyl alcohol in the sales revenue has dropped from 92% in 2004 to around 40% today. A sound mode of making a parallel development of several products has been formed.     Yunwei has benefited from the readjustment to the product distribution. The market trend today is that the closer products are to resources the higher their value will be. The company only sold 1 000 - 2 000 tons of vinyl acetate a year in the past, but 14 000 tons of vinyl acetate were sold in 2005.    According to Deputy General Manager, there are mainly two product chains in the company today. One is the chain from calcium carbide to acetylene, from acetylene to vinyl acetate and from vinyl acetate to polyvinyl alcohol. The other is the chain of soda ash and ammonium chloride in the co-production soda unit. In the past great quantities of calcium carbide slag were generated in the acetylene production based on calcium carbide and water. The company used calcium carbide slag as raw material for the cement production. It is what the company calls "industrial chain of cyclic economy".    The company management has full confidence in the future. The confidence mainly comes from 3 economic growth points. The first one is the 25 000 t/a vinyl acetate expansion project. The construction of the project is in full swing today and production can start in the first half of 2006. The second one is the further capacity expansion of cement on the basis of 320 000 t/a achieved in 2005. The third one is the co-production soda unit that was included in the performance statement only for half a year in 2005 and will be included for a whole year in 2006. With the guarantee from these projects, the company has defined the main-business revenue target to be RMB900 million in 2006.    The longer-term target of the company is the vigorous development of the acetylene chemical sector. Downstream of acetylene is not only the product chain of vinyl acetate and polyvinyl alcohol, there are also many other products. The company plans to make an investment of RMB64 million and form an alliance with Yunnan Salt Chemical Co., Ltd., Yunnan Local Power Investment Co., Ltd. and Xuanwei Development and Investment Co., Ltd. to jointly develop the acetylene chemical industry in Yunnan Xuanwei Fenghuangshan Industry Park.    From the perspective of the purchase of raw materials the excellent geographic location is the biggest competitive advantage of the company. Raw materials needed in the company such as minerals, coke, coal, water and power can be purchased from nearby sources with very low freight. For example, sources for minerals are only 2 or 3 km from the company.    The major factor affecting the production and operation of the company is power shortage. Because of the power shortage, the company can not make full-load production. Yunnan Province has however increased input in the power industry. It is expected that the power shortage will be effectively eased in 2007 and the company will be able to make normal production at that time.