Jiangnan High Polymer Fiber: Benefit from the Product Differentiation       

Jiangsu Jiangnan High Polymer Fiber Co., Ltd. (SH: 600527) is mainly engaged in the production and sales of polyester tops, polyester staple, polyester chips and artificial fur.
    In the first half of 2009, the company achieved a sales revenue of RMB360 million, down 25.4% year on year, and a net profit of RMB31.871 million, down 16.28%. The company said that the main reason for the profit decline is that the prices of its major products fell significantly due to the international financial crisis. But the gross profit margin of polyester tops was 32.6%, up 1.6 percentage points year on year, and the gross profit margin of composite staple fiber was 13.5%, up 4.1 percentage points year on year.

Polyester tops   

The company is located in southern Jiangsu province, where the wool textile industry developed most in China. 60% of China's wool textile production capacity is concentrated in this area. This provides a convenient condition for the sales of the company's polyester tops products.
    Blended with wool, polyester tops are mainly used to produce woolen fabrics which are mainly used for the production of suits and uniforms. Because civil servants need to replace uniforms every year, the demand for polyester tops is stable. Because its polyester tops have a very good quality and advantage in scale, Jiangnan High Polymer Fiber occupies approximately 60% of China's polyester tops market and has acquired the pricing right of polyester tops.
    Jiangnan High Polymer Fiber has a large number of long-term customers for its polyester tops and customizes the products for different customers. So newcomers are very difficult to enter the market. The company has now developed several differential polyester tops, such as high-shrinkage polyester tops, colored polyester tops and Fleck polyester tops. The company declares that in the future, it will also develop hollow polyester tops and other differential products. These differential products have higher gross profit margins, making the compound gross profit margin of the company's polyester tops remain above 30%.
    The company now has a polyester tops capacity of 24 000 t/a and is expected to build a 2 000 t/a hollow polyester tops production line in September 2010. By then, the company will have 13 polyester tops production lines with a total capacity of 26 000 t/a. Its capacity of polyester tops will increase with the development of the wool textile industry. Recently, the company disclosed that in 2010, it will merge one or two polyester tops enterprises to further expand its capacity.
Composite fiber

Composite fiber   

    The company's composite fiber business is still in the initial development stage. Composite fiber is used to produce non-woven fabric which is an ideal material to produce the surface of high-end disposable hygiene products (sanitary napkins, diapers, etc.) and medical bandages. Between 2003 and 2008, China's output of non-woven fabric had a compound growth rate of 35%. Even in the global financial crisis, the growth has not been affected. Demand for woven fabric from downstream industries is still growing.
    As for composite fiber, the company is developing ultrashort ES fiber paper, 4080 fiber and other differentiated products which have high profit margins. The annual import of 4080 fiber is about 35 000 to 50 000 tons a year for the country, according to the company.
    In 2009, the company decided to build 4 composite fiber production lines with a total capacity of 80 000 t/a. Taking into account that the new composite fiber capacity needs to be digested by the market gradually, the company decided that in a short term, two of the four production lines will be used to produce recycled PET fiber (waste PET bottles as raw material) temporarily, and these two lines have been put into operation in the first half of 2009. The other two ones will be put into production in the spring of 2010. By then, the company's composite fiber capacity will reach 100 000 t/a.
    At present, the company's composite fibers business occupies a domestic market share of about 30%, so the company decides to sell composite fiber in a low price to increase its market share. Its ES fiber has a gross profit margin of about 13%, ultra-short fiber about 15% and high-strength fiber about 11%. So the compound gross profit margin of composite fiber is about 13%. After the four composite staple fiber projects are put into operation, the company's market share will increase from currently 30% to over 50%.
    The company said that in the first half of 2009, its revenue from composite staple fiber was RMB155.9177 million, down 3.28% year on year. In the second half of 2009, the company has placed the sales of composite staple fiber on the most important position. The company's strategic goal is that by 2010, while maintaining its leading position in the domestic polyester tops industry, it will become a new leader in the composite staple fiber industry and achieve an annual sales revenue of RMB2 billion and a net profit of RMB200 million. In the third quarter of 2009, the company's revenue was RMB295 million, up 48% year on year and 36% from the second quarter, but its gross profit margin was only 12%. The company expects that during 2009 and 2011, the compound growth rate of its net profit will reach 36%.