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Yongmao Holdings: Lifting The Bar In The Crane Industry
Over the past two decades, Singapore has experienced a construction boom to house a growing population and an influx of multinational corporations entering the local market. As such, tower cranes dominating our skyline have become an everyday sight.
Within our local bourse sits a player that serves this niche segment. Yongmao Holdings, established in 1992, is a designer and manufacturer of a wide range of tower cranes, components and accessories.
Global Reach
The firm’s production facilities are located in Fushun city, Liaoning province and Beijing, China. The former is able to construct up to 400 cranes a year while the latter has the ability to churn out up to 360 cranes per annum.
The company’s tower cranes boast lifting capacity of up to 100 tonnes. Its products are exported and sold mainly to construction equipment distributors, construction firms and equipment rental companies in more than 70 countries.
Yongmao’s general manager, Sun Tian, noted that the firm aims to enter a new growth market every year. A growth market is a defined as one with sustainable growth rate over a five-year period as a minimum.
As Yongmao may take some time to understand the local business environment well, it seeks to work with an exclusive distributor for each market.
The firm will sell its products to the distributor who will run the operations within the country, including sales and marketing as well as after-sales maintenance services.
These distributors are measured against certain targets and are reviewed annually to ensure their standards are maintained, added Sun.
Source: NextInsight. Welder at Yongmao's Fushun city factory.
Premium Price
However, the drive for excellence is not imposed solely on third parties but rather, it began from within. This led Yongmao to building one of the most modern tower crane manufacturing facilities in China.
A recent tour of their Fushun factory uncovered a neat, clean and orderly work environment.
Sun shared the desire to deliver quality products that its clients can trust. While acknowledging that their products are among the priciest within China, Sun explained that construction firms are highly conscious about safety and reliability, which Yongmao has built a reputation for.
This allows Yongmao to command a premium over its peers.
Depending on the complexity and size of the product, Yongmao is able to design and construct a tower crane within 30 to 60 days.
Additionally, the firm carries stock of certain popular models to cater to customers willing to pay a premium price in exchange for a shorter turnaround time. This translates to higher margins for Yongmao.
Separately, the company offers customisation to its clients. This was one of the key attractiveness of Yongmao to customers who were turned away by European manufacturers and enabled the firm to bag new contracts.
Dividend Payout Resumed
A look into their income statement shows a rosy picture at the top. Yongmao’s turnover has risen at an 18.5 percent compound annual growth rate from Rmb461.2 million to Rmb909.6 million over the past five years.
Its gross profit margin has hovered between 25.4 percent and 28.2 percent during the same period.
However, on the bottom line, Yongmao posted a loss of Rmb15.5 million in FY12. This was attributed to a Rmb23.3 million impairment of goodwill related to its subsidiary, Beijing Yongmao Jiangong Machinery Manufacturing Co. Excluding FY12, Yongmao has recorded net profits for the other four years.
The improvement in its financial performance and positive outlook as led the company to resume its dividend payout after a hiatus of two years in FY11 and FY12.
Yongmao’s chief financial officer, Yap Soon Yong, divulged that the company has a dividend payout ratio in mind but is cautious against setting it in stone as the firm may alter its plans according to capital expenditure requirements.
Positive Outlook
Rapid urbanisation in China has resulted in a surge of the nation’s urbanisation rate from 19 percent in 1980 to 53.7 percent in 2013. This figure is set to increase as the Chinese government released an urbanisation plan to have 60 percent of its people living in cities by 2020.
This bodes well for Yongmao as the company derived 65.5 percent of its FY14 revenue within China, with Asia (ex-China) coming in as the second largest geographical contributor at 24.9 percent.
Sun shared that construction firms are facing a shortage of workers as the younger generation opt for other forms of employment. This encourages the companies to seek out methods to reduce work on-site. One way is the use of prefabrication.
In order for the construction companies to lift the assembled structures up, they require tower cranes with heavier lifting capabilities. This has created a shift in demand away from smaller tower cranes to their bigger counterparts.
The move would benefit Yongmao, not only in terms of more orders, but in their margins as well, as larger tower cranes provide higher profitability.
Source: Company. Tower crane painting area.
Separately, Sun noted that lower capital expenditure costs and the benefit of a young fleet during bidding processes has prompted construction firms to rent tower cranes, instead of purchasing them.
In its latest fiscal year, Sun reckons about 40 percent of their products went to rental companies and he sees this trend persisting.
To ride on the growing trend, Yongmao owns an 11.6 percent stake in Singapore-listed Tat Hong Holdings’ China operating subsidiary, one of the top tower crane rental companies in China. Tat Hong procures its tower cranes exclusively from Yongmao, where it owns a 24 percent shareholding.
As an investor, one likes to know that the management’s interests are aligned with the shareholders. With Sun’s family holding 58.4 percent of Yongmao’s shares, I like to believe that their investors’ capital and faith will be well taken care of.
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