TARGET
Intelligence Report
VOLUME XXI  No. 171 S A T U R D A Y August 10, 2019

 

 

 

 

 

IMPRO  PRECISION  INDUSTRIES  LTD:

A  SUCCESS  STORY,  TO  BE  SURE,  BUT  ONE  MUST  PRAY

THAT  MANAGEMENT  DOES  NOT  OVERTRADE

 

 

While Senior Management of Impro Precision Industries Ltd (鷹普精密工業有限公司) (Code: 1286, Main Board, The Stock Exchange of Hongkong Ltd) is quite obviously concerned about the political tensions between The United States of America and the People’s Republic of China (PRC) in respect of trade between the two largest economies of the world, at the same time, the additional tariffs, imposed by the Administration of President Donald John Trump, tariffs that have become a bane to the Company financials, have caused Management to institute undesirable steps in an effort to ameliorate the seemingly every-worsening situation.

 

Nevertheless, the present Mexican standoff between the two feuding nations with regard to trade, continues to fester consternation in the minds of the Senior Management of Impro Precision Industries Ltd because, inter alia, The United States of America continues to be the most-important, single market of the Company, representing more than 40 percent of the Company’s Annual Revenues.

 

Impro Precision Industries Ltd published and disseminated its Global Offering Prospectus in the Hongkong Special Administrative Region (HKSAR) of the PRC on June 18, 2019, and, high up in the ‘OVERVIEW’ of the Company’s Summary, one was informed:

 

The U.S.-China trade tension remains and it is uncertain any further measures will be taken. … Changes in international trade policies and international barriers to trade may have an adverse effect on our competitiveness and expansion plans. We will strive to leverage our global footprint and collaborate with our customers to mitigate our adverse exposure to such tariff lines mainly by passing on the additional tariff to our customers. In this regard, we have entered into good faith negotiations with our customers individually and we have been able to pass the additional tariff partially or in full to our customers depending on factors including the price competitiveness of the products we supply to them and the potential of the business volume growth for the customers. For the year ended December 31, 2018, the total amount of additional tariff levied on our products was approximately HK$31.1 million and approximately HK$11.8 million of such additional tariff was borne by our Group. In addition, we also believe the adverse impact of the additional tariff would be partially offset by the depreciation of Renminbi since June 2018 as we typically generate our revenue in U.S. dollars or Euro from the export products. Accordingly, we do not believe the additional tariff will have a material impact on our financial results in the future.’

 

Be that as it may, Management is being forced to keep a watchful eye on any and all important matters, relating to the continuing tensions between the two largest giants of international trade.

 

Otherwise, for what other reason would be the rationale for the above paragraph to have been published at Page 14 of the 624-Page Global Offering Prospectus of Impro Precision Industries Ltd?

 

The Business Of Impro Precision Industries Ltd

 

At Pages 193 and 194 of the Global Offering Prospectus of Impro Precision Industries Ltd, one was informed as to the business of this multi-billion dollar Company in terms of its Annual Revenues, all of which are denominated in Hongkong dollars:

 

OVERVIEW

 

‘We are a global top 10 manufacturer of high-precision, high-complexity and mission-critical casting and machined components for diverse end-markets. We supply customized casting and machined products and provide surface treatment services to a well-diversified global customer base. According to the Roland Berger Report, we were the world’s 7th largest independent and China’s largest investment casting manufacturer and the world’s 4th largest precision machining company in the end-markets of automotive, aerospace and hydraulics, each in terms of total revenue in 2018. Our global leading position is underpinned by our integrated business model with comprehensive capabilities of offering one-stop solutions to our customers.

 

Many of our customers are renowned global leaders in their respective industries, including Benteler, Bosch, Caterpillar, Cummins, Honeywell, HUSCO, Modine and Parker-Hannifin. We have been selected as a strategic and long-term supplier for many of our major customers, for whom we develop highly customized products. We are one of a limited number of manufacturers that not only possesses essential industry-specific certifications, but has also passed these well-recognized customers’ stringent and lengthy internal supplier qualification processes.

 

We operate primarily in four business segments: investment casting, precision machining, sand casting and surface treatment. In 2018, we achieved a total revenue of HK$3,749.1 million, representing a 23.0% increase from 2017. Revenue derived from investment casting, precision machining, sand casting and surface treatment segments accounted for 42.2%, 32.4%, 16.0% and 9.4%, respectively, of our total revenue in 2018. Currently, investment casting is our largest business segment and will continue to be our core business segment.

 

We serve customers which have global presence in a wide range of sectorial end-markets. Our principal end-markets include passenger car, commercial vehicle, high horsepower engine, hydraulic equipment, aerospace, construction equipment, agricultural equipment, recreational boat and vehicle, medical and energy. In particular, we strategically target to increase sales to the end-markets that we believe have higher profitability and stronger growth potential, such as aerospace and medical end-markets.

 

Our integrated operations enable us to offer comprehensive one-stop solutions, including a suite of value-added services, which cover the precision component value chain. Leveraging our strong product design and development capabilities as well as advanced technologies and expertise, we strive to keep abreast of global industry trends and manufacture products that cater to customers’ evolving needs and satisfy their high quality requirements. We also seek to further penetrate into new markets by exploring cross-selling opportunities across different business segments of our existing customers and across the end-markets in which they operate.

 

We have established business presence with strategically located production, sales and warehousing facilities in China, Europe and North America. We currently have 15 production facilities in China, Turkey, Germany, the Czech Republic and Mexico, which are supported by nine sales offices in China, North America, Luxembourg, Turkey, Germany and Hong Kong, as well as warehousing capacities in China, North America, Luxembourg and Turkey. Each of our production plants also maintain certain warehousing capacities to meet customer demands. These strategic locations around the world enable us to better allocate internal resources, reduce logistics costs and lead time, and serve our global customers in a timely manner. In 2018, our revenue derived from the United States, Europe, China and Asia (excluding China) accounted for 42.0%, 32.6%, 22.9% and 2.5%, respectively, of our total revenue.’

 

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