Falling raw material prices helped Bauhinia's gross profit margin improve significantly in the first half of the year

News on August 3, recently, Yates Chemical Group (00408.HK) announced that it expects net profit in the first half of this year to drop by more than 80% compared with the net profit in the same period last year. This news attracted market attention, and the group said that the decline in net profit was mainly due to various reasons.

It is understood that one of the important reasons is that the Group completed the transaction to sell 51% of its interest in the solvent business to Taimeng in 2022, resulting in the Group's actual interest in the solvent business being reduced from 75% to 24%. Since the solvent business is no longer included in the Group's financial results and profits are calculated only as an associate, the profit contribution of the solvent business in mid-2023 will be significantly lower than that in mid-2022.

In addition, the RMB depreciated by approximately 3.75% in the first half of 2023, resulting in the Group recording a net exchange loss of approximately HK$23 million during that period. About two-thirds of the losses were caused by unrealized exchange differences on the revaluation of foreign currency balances. In contrast, in mid-2022, the Group was able to offset losses on changes in fair value of foreign exchange forward contracts through net exchange gains, including approximately HK$14 million from the solvent business.

In addition, the Group's business was affected by the slower-than-expected economic recovery from China's post-COVID-19 epidemic in mid-2023, resulting in a decline in turnover and operating profit.

However, it is worth noting that despite the sharp decline in net profit in the first half of the year, the gross profit margin of the Group's continuing operations in mid-2023, especially the coatings business, has improved significantly compared with mid-2022. This shows that the Group has taken some positive measures in responding to international economic fluctuations caused by the post-COVID-19 epidemic and geopolitical conflicts to improve efficiency and profits.

As one of the core businesses of Yeh's Chemical Group, Bauhinia has been committed to the production and sales of architectural coatings, BCG art coatings, industrial coatings (including furniture and wood coatings, plastic coatings and anti-corrosion coatings) and resins since its establishment in 1982. The group has three major production bases in Huiyang, Guangdong, Jinshan, Shanghai, and Chengdu, Sichuan, and owns well-known brands such as Bauhinia, Camel, Aquapro, Hengchang, and Dachang.