 2016-01-31 |
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YC Group's three listed subsidiaries, including YC, Achem, and Xinzhu Global (3171), have seen remarkable improvements. Xinzhu Global, responsible for packaging material sales, previously suffered losses of over RMB 10 million in mainland China. After a year of adjustments, the company achieved impressive results, with quarterly gross margins exceeding 20%, making it the most profitable company in the group. Chairman Jiang Wen-rong stated that despite numerous challenges in the broader environment, the company's revenue is expected to grow this year, with a goal to double revenue within five years.
Xinzhu Global reported total revenue of NT$1.733 billion last year, a 2.5% decrease compared to the previous year. In the first three quarters, net profit after tax reached NT$75 million, a 54.4% increase year-on-year, with earnings per share of NT$1.27, marking the highest profit growth within the group. The following are highlights from an exclusive interview:
Becoming a Packaging Consultant: A Winning Approach
Q: Achem also sells packaging materials. How does it differ from Xinzhu?
A: Achem produces, manufactures, and sells packaging materials but mainly delivers to distributors. Xinzhu, on the other hand, deals directly with end customers, focusing 100% on selling products and services. While Achem covers production, packaging materials, and tapes, Xinzhu also sells products from Wanchao, though these products account for less than half of Xinzhu's revenue.
Q: Xinzhu has maintained a gross margin of over 20% each quarter since last year. What is the key to its competitiveness?
A: Xinzhu does not merely act as an agent for products; it provides a complete solution, helping customers find the most suitable and cost-effective packaging materials tailored to their needs. Essentially, Xinzhu serves as a packaging consultant.
Therefore, Xinzhu’s sales team collaborates with customer R&D units to develop packaging solutions, drawing on decades of accumulated experience and expertise. However, Taiwanese businesses excel at cost reduction, so Xinzhu must leverage bulk purchasing and multiple channels to lower procurement costs. By offering competitive prices and professional services, Xinzhu can effectively retain customers.
Client Base
Q: Who are Xinzhu's clients?
A: Currently, Xinzhu primarily serves clients in the information technology sector. The combined revenue from Taiwan and mainland China’s IT clients accounts for over 40% of total revenue. Due to the short product lifecycle and continuous introduction of new products in the IT sector, there is a high demand for packaging materials. Xinzhu can offer various materials for customer testing according to their product specifications, which often requires customization and high quality—areas where Xinzhu excels and aligns with its operational model.
Focus on Mainland China Expansion
Q: Xinzhu's initial expansion into mainland China was not smooth. Can you discuss the challenges faced and how the company adapted its strategy?
A: Initially, there was an assumption that Taiwan’s experience could be replicated in mainland China. Despite the common language, significant differences emerged, such as issues with customer business integrity and high recovery costs due to unfulfilled delivery and payment promises. Additionally, the packaging industry in China was disorganized with severe overcapacity. From the third year of expansion, Xinzhu began reconsidering its strategy and decided to target large enterprises. This decision was based on two factors: large customers have stringent quality requirements for packaging, and they are less affected by adverse economic conditions compared to smaller enterprises.
Securing orders from large enterprises required customer certification, which took about a year to start contributing to revenue. However, Xinzhu has since found the most suitable business model for the Chinese market.
Q: Will Xinzhu establish new locations in mainland China?
A: Xinzhu currently has offices in Shanghai, Tianjin, and Wuhan, and will establish an office in Shenzhen in the first quarter of this year to meet customer demands. New locations will be added strategically rather than expanding indiscriminately, focusing on key areas.
Q: As you have been in the role of chairman for a year, what goals have you set for Xinzhu?
A: The overall situation in mainland China is still adjusting, and Taiwan’s economic conditions will also be approached with caution. Xinzhu will leverage its strengths, with five to ten potential clients in mainland China expected to yield results. Revenue from mainland China is anticipated to grow by at least 20% compared to last year.
In Taiwan, with the introduction of new customers and products, revenue is expected to grow by double digits. Overall, this year’s operations are projected to surpass last year’s performance. Currently, Taiwan accounts for about 70% of revenue, with hopes that in one to two years, the revenue share from Taiwan and mainland China will be equal. In two to three years, mainland China’s revenue contribution is expected to surpass that of Taiwan, aiming for a doubling of consolidated revenue within five years, positioning Xinzhu as the largest packaging distributor in both Taiwan and mainland China.
Jiang's Hands-On Management and Performance Focus
Jiang Wen-rong, who was promoted from general manager to chairman last year, emphasizes a methodical and step-by-step approach to internal talent development. As responsibilities grow with the position, so does the focus on performance.
Having served YC Group for 24 years, starting as a front-line sales representative in the packaging materials department, Jiang’s understanding of team operations is thorough. Known for his strict approach, he personally hosts monthly business review meetings to scrutinize performance by region and client tracking, sometimes via video conference to include mainland China’s regional managers, fostering a competitive spirit between the two regions.
Jiang is not confined to the office; he regularly visits locations after meetings and administrative duties, reflecting his proactive management style. Additionally, he travels to mainland China at least once a month to meet with regional managers and review project plans.
Despite the increased responsibilities of being chairman, Jiang feels the core tasks remain the same and approaches them with a positive attitude. To manage stress, he runs every morning for 40 minutes to an hour, finding that running not only promotes health but also provides the stamina needed to oversee performance.
Analysts: Q1 Operations Show Promise
Xinzhu Global (3171) reported NT$155 million in revenue for December, a 1.14% monthly increase but a 3.35% year-on-year decrease. For the full year, revenue was NT$1.733 billion, down 2.53% from the previous year. Analysts noted that Xinzhu’s domestic packaging orders remain stable, and key customer orders in mainland China have increased, contributing to growth.
With declining raw material costs and improved unit profitability, the first quarter’s operations are expected to perform well. However, with current daily volumes below 100 units, caution is advised.
Xinzhu’s product range includes industrial applications, paper packaging materials, plastic series, cushioning materials, packaging machinery, and tape series, with over 50 domestic sales locations. In mainland China, it has offices in East, Central, North, and South China. Analysts believe that Xinzhu's shift to targeting large customers in mainland China, such as those in the wire and optoelectronic sectors, will yield tangible benefits. Revenue from mainland China is projected to reach NT$450-500 million this year, increasing its operational contribution to about 25%, with future revenue distribution between Taiwan and mainland China expected to be balanced. |
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