· China's largest auto glass manufacturer wants H-share financing for overseas expansion

· China's largest auto glass manufacturer wants H-share financing for overseas expansion

As China's largest and the world's second-largest auto glass supplier, Fuyao Glass can only maintain its competitive position by simultaneously expanding globally with the OEMs under the demand of the supporting automakers. But for a long time, the problem of “lack of money” is like a gap between Fuyao and its future grand plans. It has not been alleviated in 8 years. Since 2005, Fuyao’s three-time A-share issuance has failed.
Fuyao is like a beast that has been banned, and cannot find the key to opening the road to free development.
Willow dark flowers. Not long ago, Fuyao Glass announced that it would move to H shares. "If the calculation of the upper limit of the raised funds, the total size of the fundraising is expected to reach more than 4 billion yuan." Northeast Securities analysts told reporters that the fundraising will be mainly used for the overseas market development of Fuyao Glass.
Financing needs
Pursuant to the resolution of the issuance of H shares and the listing on the main board of the Hong Kong Stock Exchange, the funds raised by Fuyao Glass will be mainly used for its development in overseas markets. According to analysts from Northeast Securities, the funds raised by this H-share listing will exceed 4 billion yuan.
Since 2005, Fuyao Glass has tried to raise financing in the A-share market three times, but all ended in failure. Judging from the balance sheet dated June 30, 2013 issued by Fuyao Glass, as of June 30 this year, Fuyao Glass's asset-liability ratio reached 50.97%. Fuyao's interest-bearing liabilities are about 3.07 billion yuan, and the cash flow is only about 2 billion yuan.
Such cash flow is far from supporting large-scale overseas development. To this end, Fuyao Glass has chosen the expedient strategy to open up key markets.
In September of this year, Fuyao Glass set up a factory in Russia. The production capacity of the first production line of the plant is 1 million sets of automobile glass per year. According to Fuyao Glass's plan, about two-thirds of its products produced in Russia will be exported to Europe, and one-third will be sold in the local market. In the next two years, Fuyao will also launch two production lines with the same production capacity. The total investment of the project is 300 million euros. At present, the first phase of the Fuyao Russian branch has entered the trial production phase and is expected to be officially put into operation in January 2014.
Traveling to Russia opened a window for Fuyao to radiate the Eastern European market. In fact, Russia and China's two-line operations still cannot meet the layout needs of Fuyao as the world's largest automaker. Fuyao Glass's largest competitor, Asahi Glass Co., Ltd., not only has factories in Asia, China, Indonesia, Thailand, Vietnam, but also its subsidiaries in Europe, and Fuyao Glass's production base is only China and Russia.
This trip to Hong Kong is a red carpet for Fuyao Glass on its way to its dreams. It is understood that Fuyao Glass will raise funds for the construction of automotive glass and float glass production bases, marketing and service networks in Russia and the United States.
Disappearing demographic dividend
Whether it is the needs of enterprise development or the deterioration of the external environment, Fuyao Glass is required to attack quickly.
“The Auto Group hopes that the parts and components companies can follow the construction of the whole plant, realize local support and grow together.” Toyota insiders told reporters that “Toyota will often bring the suppliers to the market while paving the way for overseas markets. Realizing the local presence, saving logistics and customs clearance time, Fuyao Glass is the largest auto glass manufacturer in China. To achieve a global strategy, overseas construction is an indispensable step.
At the same time that Volkswagen, Toyota, Nissan and other companies will put into operation in China, they will introduce a large number of supporting enterprises into China.
“Localization rate is an important indicator for the competitiveness of automobile OEMs. Most of the key components such as automobile engines and gearboxes are directly put into production by the OEMs, while other components need to be introduced to the nearest manufacturers near the factory. "FAW-Volkswagen insiders told reporters, "This is actually the trend of overseas expansion of automobiles. Local production can reduce tariffs. Therefore, multinational auto companies choose to build factories globally, and they also require supporting manufacturers to keep up with the OEMs."
At present, Fuyao Glass has reached 70% market share in China, and its customers are relatively stable. It is not easy to achieve breakthroughs. In order to achieve leapfrog development and obtain more orders, going out is an important means for Fuyao to break through the current bottleneck.
Another reason for the rapid departure of Fuyao is that the labor, logistics, materials and other costs of Chinese factories have increased in recent years. The cost advantage of domestic production is constantly being weakened.
In the first half of 2013, the cost and expense ratio of Fuyao Glass reached 80.89%. According to public information, although Fuyao controls costs by improving efficiency, controlling procurement costs, and developing new technologies, in fact, Fuyao Glass's largest increase in the first half of this year is still administrative expenses, reaching 574 million yuan, compared with last year. During the same period, it increased by 27.77%, of which employee compensation increased by 39%. According to statistics, the increase in labor costs of Fuyao Glass in the past four years has far exceeded the rate of income growth.
The cost advantage of Chinese factories is gradually lost, and all of this has spurred the pace of Fuyao going out.
Internationalization problem
"With the issuance of Hong Kong stocks, Fuyao's overseas expansion strategy will be realized, and the current competitive situation has also provided conditions for Fuyao to eventually become the world's number one auto glass manufacturer." Northeast Securities analyst told reporters.
At present, the auto glass business of Asahi Glass Co., Ltd., the main competitor of Fuyao Glass, is in a downturn. According to the financial statements disclosed by Asahi Glass, the sales revenue of the glass business segment in 2012 was 564.605 billion yen, including 256.945 billion yen for auto glass (about 16 billion yuan, and about 10.2 billion yuan for Fuyao in the same period last year). However, Asahi Glass's automotive glass business is in a state of loss. In 2012, Asahi Glass's automotive glass business suffered a loss of 251 million yuan.
Not long ago, Asahi Glass made a bet on flat glass, and high-end solar film manufacturer Heliatek GmbH signed a cooperative development agreement with AGCGlassEurope, a European subsidiary of Asahi Glass. In the automotive glass business, Asahi Glass is currently in a contraction situation.
This provides an opportunity for Fuyao to achieve leapfrog development. With the issuance of Hong Kong stocks, Fuyao Glass's capital will be enriched, overseas expansion will accelerate, and the future income scale is expected to reach 20 billion yuan. According to Fuyao's plan, the future Fuyao overseas base business will account for at least 50% of the company's revenue share, and the company will develop into a truly international multinational company in 5-7 years. At present, Fuyao Glass's overseas operating income is approximately 30% of the company's total operating revenue.
Despite the pessimistic forecast of the global macroeconomic situation, Fu Yao glass head Cao Dewang said that this will not affect Fuyao Glass's overseas expansion strategy. "Enterprises should be very clear about what they are doing, and cost and quality control is a system. The project should be treated with lucidity. Enterprises can formulate practical and feasible solutions according to their own situation. Fuyao's strategy will not change, but there will be different countermeasures."

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