Qingmei’s first quarter profit up 12.7% TO RMB80.5m

Revenue rises 20.1% to RMB364.9mn while gross profit margin improves 1.5 percentage points to 30.5% on cost savings due to economies of scale.

Qingmei Group Holdings Limited (“Qingmei”), one of China’s leading original design manufacturers (“ODM”) of mid-end and high-end sports shoe soles in the PRC, announced Thursday its financial results for the three months ended September 30, 2011 (“1QFY12”). The Group’s net profit climbed 12.7% to RMB80.5 million on the back of a 20.1% increase in revenue to RMB364.9 million. 

The Group’s revenue growth was due mainly to a 24.0% increase in the quantity of shoe soles delivered from 11.0 million pairs in 1QFY11 to 13.7 million pairs in 1QFY12. The Group’s expanded production capacity from the first phase of its capacity expansion programme had contributed to the increase in the quantity of shoe soles delivered in 1QFY12. During the period under review, its average selling prices remained relatively stable. 

Revenue from the Group’s MD II shoe soles rose 8.8% to RMB214.9 million, accounting for 58.9% of total revenue in 1QFY12. Revenue from MD I and RB shoe soles rose 33.7% and 105.6% respectively. MD I contributed RMB128.3 million or 35.1% to total revenue in 1QFY12, while RB shoe soles accounted for RMB21.7 million or 6.0% of total revenue.

Gross profit margin rose 1.5 percentage points to 30.5% in 1QFY12, as the Group benefited from cost savings due to economies of scale, especially from the reduction in average cost per unit as the Group increased its production volume. 

Other income and gains decreased from RMB7.2 million in 1QFY11 to RMB0.4 million in 1QFY12. An exchange gain of RMB6.8 million was recorded in 1QFY11 on the Group’s outstanding bank deposits in Singapore Dollar, following the appreciation of the Singapore Dollar against the Renminbi in the quarter. No exchange gain was recognized for 1QFY12. 

Despite higher sales, the Group’s selling and distribution expenses saw a marginal 5.6% increase to RMB3.1 million. Administrative expenses rose 24.0% to RMB9.6 million in 1QFY12, due to an increase in salaries and related welfare expenses of administrative personnel, in line with the Group’s expanded operations, according to a QIngmei report. 

Other expenses, mainly research expenses for the development of new materials for the production of shoe soles, decreased 7.2% to RMB2.0 million in the period under review. Depreciation increased 11.8% to RMB12.3 million in 1QFY12, due mainly to the purchase of moulds for production, in line with the Group’s expansion of its production scale in the quarter. 

Outlook
In light of present market conditions, the management has decided to maintain its current production capacity, in line with market demand. 

With the implementation of minimum wages by the local governments, labour costs have inevitably increased. To this end, cost savings enjoyed due to economies of scale – in particular the reduction in average cost per unit for depreciation, amortisation, product design and development cost – as a result of the substantial increase in production volume have offset any increases in direct labour costs.