Rongtai: New Star in the Substitute Material Sector

Guangdong Rongtai Industry Co., Ltd. (SH: 600589) is mainly
engaged in the production and sales of amino composite material
and products. Major products include amino composite material,
formaldehyde, urotropine, phthalic anhydride and DOP (dioctyl
phthalate). Polymer new material has always been the focus in
the development of the company. The company acquired a capacity
of 23 000 t/a ML series composite new material in 2001. With the
completion of the IPO, the capacity of amino composite material
increased to 70 000 t/a. The chemical name of amino composite
material is "high polymeric amino composite". It is an upgraded
product of traditional melamine plastic.
    According to statistics, amino composite material produced
in the company once held a 50% share in the domestic market in
2003. As the market demand grew rapidly in recent years and the
company failed to conduct capacity expansion, therefore, its
market share was going down and was only 30% in 2005. In the main
business revenue of the company, the revenue of amino composite
material accounted for 66.68% in 2005.

Strengthen main business

Rongtai has considerable advantages in amino composite material.
In a scenario of skyrocketing price rise of crude oil and
large-volume raw materials in the international market, cost has
become an outstanding advantage for the company. On the one hand,
the company uses innovative recipes developed by the company
itself. The consumption of melamine is reduced from more than
30% with traditional melamine plastic to less than 10% and the
product material cost is therefore down by around 30%. On the
other hand, not all raw materials used in the company are
petrochemical products. There is no need to purchase
formaldehyde, a large-volume raw material for the amino
composite new material production, because the company has its
own formaldehyde production unit. Methanol as raw material for
the formaldehyde production, however, has to be purchased from
outside sources. As the company has its own terminal, methanol
is basically shipped to the company by waterway and the raw
material freight cost is reduced. The impact of the rising crude
oil price in the international market on the performance
improvement of the company is therefore not great. The revenue
and the net profit accomplished by the company in 2005 reached
RMB570 million and RMB58.16 million respectively, hitting a new
historical record and an increase of 13.58% and 6.82% over 2004.
     In addition to the cost advantage, the company also has
advanced technology in amino composite material. The free
formaldehyde content in amino composite new material produced
in the company is only 1mg/L, much lower than the national
standard (no more than 30mg/L) and the international standard
(no more than 10mg/L). Products made from amino composite
material have reached international hygiene standards.
   With the demand of amino composite material growing rapidly,
the demand will hopefully increase to 250 000 tons in 2006. The
company has taken "strengthening main business and expanding
amino composite new material capacity" as the future development
strategy. The existing 15 000 t/a amino composite material
production line has been running for nearly 10 years. Although
it is still in normal operation, a new production line needs to
be constructed to increase efficiency. The company therefore
plans to raise around RMB200 million for the expansion of 600
000 t/a amino composite new material capacity. In this way, the
total amino composite new material capacity in the company will
reach 130 000 t/a and the market share will increase to around
46%. The product has a large market volume and a brisk downstream
demand. The project is expected to start production in June 2007.
After the completion of the project, the advantage of the company
in leading products will be more prominent, maximum interests
of shareholders can be achieved and the leading position of the
company in the amino composite material sector will be further
consolidated. After the targeted investment increase, both the
capacity and the net profit of amino composite material in the
company will be doubled and potential returns are remarkable.

Feature promising market prospect

From the viewpoint of environmental protection and China's
development strategy, amino composite material is in better
conformity to the requirements of environmental protection and
sustainable development compared with ceramics. The
substitution by amino composite material for ceramic products
is displaying more and more advantages. In terms of cost, the
cost and the selling price of products made from amino composite
material are lower than similar plastics. The advantage in the
substitution of amino composite material for similar plastic
products is therefore prominent. With the constant price rise
of nonferrous metals, the cost of daily-use articles and
industrial components made from stainless steel is on the
increase and an opportunity has been provided for the
application of amino composite material. Besides, with the
growing awareness in environmental protection, amino composite
material will be used more and more to replace bamboo and wooden
products.