Highsun: Kaolin Products with Broad Prospects      

Guangdong Highsun Yongye (Group) Co., Ltd. (Highsun, SZ: 000861), located in Maoming, Guangdong Province, was founded in 1992 and listed on the Shenzhen Stock Exchange in 1998. The main products of Highsun are kaolin, carbon black and other chemicals. At present, the company has an annual capacity of 250 000 tons of kaolin and 50 000 tons of carbon black. The company mainly has single-flake kaolin resources (the ideal formula is: AL2O3-2SiO2-2H2O). After company's mature process, it can be directly applied in the paper-making industry and coating industry. The company's largest shareholder is Guangdong Highsun Shiye Group Co., Ltd. (Highsun Shiye), holding 69.62% equity.
    The company produced 88 000 tons of kaolin in the first half of 2008, increasing 21.25% over the same period of 2007; 31 000 tons of carbon black, an increase of 60.86%; the company achieved an operating income of RMB254 million, a rise of 38.88%; has a net profit of RMB 16.31 million, a rise of 1.26%. The company's operating income reached RMB413 million and net profit was RMB2 922 in 2007. Highsun has estimated that its net profit in 2008 will be 300%-400% higher than in 2007. After the company's completion of issuing share and purchasing assets of Highsun Shiye with cash in 2008, the company's net profit is around 120 million - 140 million in 2008.
    At present, the market share of kaolin is declining in the area of packing and middle/low class coating sectors impacted by alternative products such as calcium carbonate, while the high grade kaolin used in the paper-making industry and calcined coal-series kaolin products are less impacted by those substituted products.

Geographical advantage of Highsun   

Near China's main ceramics production areas, Highsun has an obvious geographical advantage, even with the decreased production of pottery kaolin in Qingyuan, Chaozhou, Guangdong province. Still it can obtain more market share benefited from large-scale production and low transport cost.
    The company has redundant kaolin ore resources in Maoming and Hepu regions, which are among the few kaolin resources in China suitable for the production of high-end coatings. At present, the company has already obtained 60 million tons of kaolin resources in Hepu area. Although processing costs in this region are higher than in Maoming area, technical processing for kaolin ore from the Hepu area has already been solved. The company will continue to strive for high quality kaolin resources in Maoming, Guangdong province and Guangxi province.

High-quality products under strong R&D   

The company pays great attention to R&D of kaolin products, and has built a kaolin base of university-industry-institute with China University of Geosciences in order to enhance performance of kaolin products and expand the applications of kaolin. The company has developed a kind of MM01 ultrafine kaolin product which can compare with some imported high-end products, and start to be substituted gradually for the foreign products. It is known that the price of company's middle/high-end kaolin products are around RMB1 300 - 1 900 per ton - at the same level as imported kaolin products. The company is currently endeavoring to develop more kind of kaolin products to explore their applications in the chemical sector.
    At present, the company is researching the fluidity of its high-end kaolin products. Once this technology has achieved a breakthrough, the company's products are expected to compete with the high-end kaolin imported from Brazil and capture a big market share, relying on its short transportation distance.
    The company also actively develops tailings recovery technology, making full use of tailings left after production of high-end kaolin to produce pottery kaolin, to reduce the production cost. At present, the company has already achieved one ton of pottery kaolin by-product from one ton of papermaking kaolin production, and the production cost of tailings recovery has also dropped below RMB100 per ton.

Downstream customers with anti-risk ability   

Currently affected by the economic recession with some small paper-making plants facing additional difficulties, Highsun has products with high quality and has a stable relationship with downstream customers. At present, the company's main customers include Shandong Chenming Paper Holdings Ltd., Shandong Bohui Paper Industrial Co., Ltd. and other large-scale papermaking enterprises. These companies account for more than 60% of Highsun's orders for kaolin; Highsun is also actively contacting large-scale paper plants that are newly built in Guangdong, Guangxi and Hainan provinces. Highsun mainly supplies ceramic kaolin for large-scale downstream customers, which have strong anti-risk ability.

Rapid capacity expansion and broad prospects   

After the start up of its 100 000 t/a ultrafine kaolin project in mid-2008, the company's kaolin capacity reached to 250 000 t/a. The actual output is expected to reach 300 000 tons in 2009, of which 150 000 tons is paper-making kaolin and 50 000 tons is for making pottery and other things. The first phase 300 000 tons of kaolin project is expected to be put into operation at the end of 2009, and at that time, the company's kaolin capacity will surpass 600 000 tons a year. Thereafter, with the completion of its second and third period projects, the company will form a megaton of kaolin capacity in the future.
    As the global economic growth slows down, and the growth rate of downstream tires falls, carbon black sector in China is facing great pressure. At present, the company's carbon black output has no scale advantage, being No.15 in China, while the top ten large carbon black producers hold about 50% of domestic markets. But Highsun pays attention to develop small customers with different services and flexibly choose marketing channels to maintain profitability of carbon black business.