CFO Joel Leong: Changjiang's M&A expansion plan of 1-2 plants a year is on track.

Other than the maiden sales contribution of Rmb 22.6 million from its second plant since May, top line growth was driven by increased sales for nitrogenous fertilizer, ammonia and methanol.

All of Changjiang’s products are derived from coal, and gross profit margin fell 5.2 percentage points to 27.2% due to higher coal prices.

Net profit attributable to shareholders was RMB25.2 million, up 10.9% and net margins were 22.0% (2Q09: 31.2%).

”Margins will improve with when we improve the efficiency of our second plant at Xiangyin county,” said its CFO, Joel Leong, during an analyst briefing today.

The company’s second plant in Xiangyin added 40,000 tons, or 36.7% of anhydrous ammonia capacity each year.

To improve the production efficiency and capture greater market share, the fertilizer manufacturer wants to upgrade the capacity of its Xiangyin plant to 60,000 tons per annum.

Revenue contribution of ammonia and methanol grew in 2Q10.

On 1 Jul 2010, Changjiang signed an MOU with Handan Chemical to acquire its third plant in Hunan with production capacity of 50,000 tons for Rmb 75 million.  The acquisition will increase Changjiang’s total capacity by 33.6%.

With the exception of nitrogenous fertilizer, which fell 5.3%, the average selling prices of all products increased by 5.3% to 8.8% during 2Q10. 

We made provisions for income tax incurred by the second plant.  We have yet to obtain approvals for tax incentives for this plant.

Q: What is your total headcount?

We have a total of about 820 workers for the two plants.  This number is unlikely to be reduced.

Q: How do you expect to fund your expansion?

We are likely to borrow from the bank or issue convertible bonds.  We are unlikely to place shares given the current depressed valuation of Changjiang shares.

My personal target is a 50% gearing on net assets.  In China, land use rights can be mortgaged at 50% while plant, property and equipment can be mortgaged at 30% to 40%.