In 2010, Kunming Machine Tool experienced revenue growth, but its profitability declined, resulting in performance that was slightly below expectations. The company reported operating income of 1.598 billion yuan, representing a 16.4% year-on-year increase. However, net profit attributable to shareholders dropped by 17.4%, reaching 178 million yuan, with earnings per share standing at 0.34 yuan.
The rise in revenue was primarily driven by the growth in low-end machine tool sales, which is expected to continue improving this year. According to industry reports, the overall output of the machine tool sector increased by approximately 35% in 2010. However, the market for standard products remained tight, while demand for large-scale machine tools remained relatively weak.
The company’s downstream customers are spread across various sectors, and its sales performance closely mirrored industry trends. Notably, revenue from bed-type machines rose by 78% year-on-year, while income from landing machines fell by 25%. Output decreased by about 6%, mainly due to structural adjustments and price reductions implemented during the first half of the year, which led to an 18% drop in average prices.
By the end of 2010, the new order structure began to stabilize, with quarterly orders exceeding sales volume, which is a positive sign for future revenue growth. Analysts expect the company’s annual revenue growth to reach around 20% this year. Additionally, the introduction of German Heath technology is anticipated to strengthen the company’s position in heavy-duty machine tools, potentially becoming a key growth driver in the coming years.
Profitability declined in 2010 due to product mix adjustments and lower unit prices for mid- to high-end products. The gross margin for the company’s main machine tool products and sales dropped significantly, falling nearly 5 percentage points compared to the same period last year. Meanwhile, the gross margin for high-efficiency energy-saving compressors also saw a sharp decline, dragging down the overall gross margin to 27.2%, a decrease of nearly 7 percentage points year-on-year.
The decline in gross margin was largely attributed to a higher proportion of low-end products and reduced pricing for mid- to high-end models. Looking ahead, it is expected that demand for high-end products will gradually improve. The company is currently constructing a heavy-duty casting base, which will not only meet the production needs for high-end products but also increase self-sufficiency in castings, supporting a recovery in gross margins.
Furthermore, during the “Twelfth Five-Year Plan†period, the government has placed significant emphasis on high-efficiency, energy-saving products. Although the company’s current high-efficiency energy-saving compressors are still in a break-even state, policy support could help boost sales and improve gross margins in the future.
Gao Minghui, Chairman of Kunming Machine Tool, stated that 2011 marked the beginning of the national “Twelfth Five-Year Plan,†a year filled with both opportunities and challenges. While opportunities outweighed challenges, the company faced rising inflation, increasing raw material costs, and intensified industry competition. Despite these difficulties, Gao expressed confidence in the company's long-term development potential.
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