Longhai Steel is an extremely well positioned provider of steel wire, operating out of the heart of China’s largest steel producing province, Hebei, with off take of company products being entirely consumed by the local economy (100% PRC consumption, with 80% of that being in Hebei alone – largely construction, infrastructure, and third-party processing into nails, screws, and wire mesh for concrete/fencing).
Recent expansion of the company’s manufacturing footprint (Q4 2011) has placed the higher margin, high grade steel wire, currently serviced by imports, comfortably within striking distance. The new facility is able to produce wire (5.5mm to 18mm) that is ideal for steel strand, steel wire rope, welding rod, cold heading steel, carbon structure steel, and steel belted radial tires for the burgeoning automotive sector.
Momentous times for LGHS, whose steel wire is graded as exceeding PRC construction industry quality standards, having earned a reputation (especially in Hebei) for premium reliability/product quality in all the wire rolling out of the company’s state-of-the-art manufacturing infrastructure. The recent implementation of an Enterprise Resource Planning system (inventory management/tracking with real-time situational awareness capabilities) has accelerated operational efficiencies as well, leading to improved order turnaround time, further enhancing customer satisfaction/retention.
Continued economic development in target markets, with massive drive for urbanization in Hebei, as well as other provinces, combined with the swelling infrastructural demands and automotive sector requirements, collectively yields an abundantly fertile soil for LGHS. Growth vectors are being aggressed through continued cultivation of long-term customer relationships, in addition to ongoing/continuous upgrades of the production footprint via new equipment.
Business is booming at LGHS and the recent FY11 financials reveal a dynamic business model, characterized by strong growth and innovation into key channels. Executive VP of LGHS, Steven Ross, described the white-hot financials as being stoked by ramping output from the new production facility, projecting continued year-over-year improvements in operating results through 2012 as a result:
• Annual Production Output up 67% to 1.5 metric tons via facility expansion (new high-quality, higher margin steel wire being produced)
FY11
• Sales Revenue up 28% to $608M (compared to FY10)
• Gross Profit up 0.5% to $18.7M
• Shareholder’s Equity of $57.5M ($5.72/fully diluted share)
• Zero long-term debt
Q4 FY11
• Sales Revenue up 36.5% to $197.3M (compared to Q4 FY10)
• Net Income up 36.4% to $6.3M
• Output up 23% to 293.86 metric tons
• Sales Volume up 30% to 335.23 metric tons
This kind of extremely solid footprint, making well-known, highly respected (for quality) steel wire, which is consumed directly by the local Chinese economy, is a winning profile, and the company has done a masterful job maximizing the potential of its operating space. Strict adherence to meeting/exceeding ISO9001-2000 and GB/700-88 quality standards has resulted in paramount customer confidence, with the experienced management team truly outdoing themselves, developing rich customer relations and employee capabilities alike.
A superior ability to manage raw material (and therefore final product) prices in the often volatile steel market, through purchasing subsequent to receipt of customer order, with billet prices being tracked daily and optimal responsiveness to market conditions thusly ensured, LGHS is on top of its game, able to deliver top-quality product for bottom-line prices. Positioning itself ahead of the growth markets in carbon structure steel is an example of the shrewdness of the company’s experienced management team. These guys really know the Chinese steel market and Hebei is their backyard.
China is the world’s number one producer and consumer of steel, with as much as 48% of total global demand in 2009 (46% of production), and with the roaring construction industry in China gobbling up everything LGHS produces, the natural move to evolve into parallel, underserved channels like higher quality steel wire is an obvious play.
For more information on this rapidly growing Chinese steel producer, please visit the Longhai Steel Inc. website at: www.LonghaiSteelInc.com
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