Let me ask you a simple question… “Which country has the world’s largest auto-industry?”
If you guessed the U.S. or Japan you’d be wrong. The correct answer, since 2009, is China.
Last year auto sales in China were up 32%!
In July alone General Motors sold 173,398 vehicles in China. Buick sold over 50,000, and Chevrolet sold over 46,000 vehicles.
The auto industry in China is exploding.
In 2000 China production capacity was about two million automobiles. By 2009 the industry had grown to over 14 million vehicles a year.
By 2010 the industry reached 18 million vehicles a year… and it’s growing!
China has a ravenous hunger for automobiles. The staggering growth of production and sales is proof of that.
Now I want you to think about the last car you bought.
As you know there are thousands of parts and assemblies that go into making a working automobile. Transmissions, electrical systems, cooling systems, steering… the list goes on and on.
All those parts have to be manufactured by someone!
This has created a boom in a variety of auto-related industries. Mining, engineering, electronics, and plastics have all experienced massive growth in China to support the Auto industry.
One of the companies benefiting from the growth in the Chinese auto industry is none other than China XD Plastics (CXDC).
ABOUT CHINA XD PLASTICS
China XD is one of China’s leading plastics manufacturers. Their products are used in automobiles, plasma TVs, appliances, and mobile phones.
CXDC counts all ten of the top ten Chinese automakers as an end-user.
In 2005 their first two production lines went up with an annual capacity of 7,000 tons.
Now they have 430,000 square feet of production facilities, and an annual production capacity of 165,000 metric tons.
It’s not often you see a company’s manufacturing capacity shoot up by 2,257%, in just six years.
What’s incredible… the company is still expanding!
They recently purchased the land use rights to a 50-acre piece of land, and management expects with some minimal construction, they can use it for expansion.
Now here’s the most exciting part of the plastics business.
While Autos contain a good deal of plastic components, alternative energy vehicles use even more. As the wave of green energy sweeps through the auto industry, demand for plastics is only going one direction… up!
China XD is well positioned to participate in the biggest manufacturing boom in history.
WHY CXDC? WHY NOW?
In their Q1 conference call CXDC’s CEO said he believed the automobile industry growth rate in 2011 and 2012 to be between 10% and 15%.
That’s huge growth!
Remember, cars in China, like in the rest of the world, are becoming more advanced. This means a much higher percentage of plastics are replacing metal alloys.
According to the company’s management, the average U.S. and European vehicle has 330 pounds of plastic per vehicle. In China the average is only 242 pounds. So the future looks bright for plastic demand.
China XD is aggressively pursuing higher end clients as well.
There’s a trend towards buying more advanced alloy plastics and environmentally friendly plastics. The company has a number of products to address those demands… and it explains why the company is investing so much in R&D.
China XD is announced their 2011 numbers on March 26, 2012.
CXDC has had three record breaking years in a row. In 2010 revenue was $249.8 million; up over 2009’s $135.8 million. In 2011 the company reported $381.6 million in revenue. That’s a 52.7% increase from a year before. Gross profits hit $95.8 million, jumping 55.7% from 2010. And net income was up to $60.5 million, up 110% from last year.
Here’s the best part. Total product shipped increased by nearly 50%.
The key is not only are they shipping more product, it looks like they’re charging more money for the product they ship!
What’s even better was management’s guidance!
“The Company expects its fiscal year 2011 revenue to be in the range of $280 million and $310 million and it expects its fiscal year 2011 non-GAAP adjusted net income to be in the range of $48 million and $51 million.”
Looks like CXDC not only outperformed market expectations for China, but outperformed their own expectations as well!