* Extracted from Annual Report 2021
I. 2021 REVIEW
The global economy continued to struggle in 2021 against a backdrop of the economic stimulus policies implemented by various countries and the rampant spread of COVID-19 pandemic. On the one hand, the global economy has experienced a V-shaped rebound following the second half of 2020 due to the almost simultaneous adoption of stimulus policies by major developed and emerging market countries. On the other hand, the continuous spread of COVID-19 pandemic in the globe had a severe impact on supply chains, which, combined with the quantitative easing in financial market, led to a marked rise in global inflation, laying a significant risk for economic development in 2022.
In China, the government has launched a series of short-term counter-cyclical policies, including the “Six Guarantees and Six Stabilities (六保六穩)”, and the overall economy has achieved good results, led by strong export growth and a recovery in consumption, especially in the areas of new energy vehicles and green energy, which have seen strong growth. However, it is also important to note that the negative factors, including the quarter-on-quarter decline in GDP growth, higher raw materials prices, appreciation of the RMB exchange rate, challenging environment prevailed for the real estate sector, serious setback faced by the education and training industry and the policy pressure on large internet companies, still exist in 2022.
In the telecommunications business, fixed asset investments by major telecommunications operators, which constitute an important backdrop to the Group’ s external environment, declined by 0.3% in 2021 as compared to the previous year. This decline is in stark contrast with the 4.7% growth in 2019 and 11% growth in 2020, alongside significant delays in the timing of acquisitions by major operators. The competition was further intensified in the feeder cable industry, resulting in a drop in pricing. Furthermore, the Group’s major raw material copper saw significant price fluctuations in 2021 in the midst of the appreciating exchange rate of RMB. These factors increased considerable difficulties and pressure to the Group’s operations.
Faced with the mounting pressure, all the colleagues of the Group forged ahead and sailed against the wind. By taking advantage of our good reputation in the industry and years of proven track records, in combination with a number of targeted and effective measures, the Group continued to achieve remarkable results. Our annual revenue for the year ended 31 December 2021 reported approximately RMB1,625.8 million, representing an increase of approximately 42.7% as compared to the previous year. Although the gross profit margin dropped to 18.3% due to market environmental factors, the net profit attributable to the equity shareholders of the Company still reached approximately RMB68.5 million, representing an increase of approximately 11.7% as compared to the previous year.
1. For production management
During 2021, our management strategy focused on “cost control, timely delivery, and quality improvement”. From the production management within the workshop to the overall operation of the Company, we continued to adjust and improve our own management strategy based on changing market conditions. To further deepen and strengthen our lean management, we created a total of 40 lean management projects throughout the year, 38 of which were completed and saved manufacturing costs by approximately RMB11,305,000. Our extensive micro-innovation campaign also motivated all employees to take the initiative to engage in innovation activities, and secured a total of 6,481 micro-innovation projects with accumulated tangible gains amounting to approximately RMB8,351,300. The number of completed costs improvement projects amounted to 37 throughout the year, producing accumulated revenue o f approximately RMB14,710,000.
In terms of product structure, the output of RF Coaxial Cables in 2021 increased by 28.5% as compared with the same period in 2020. The output of Telecommunication Equipment and Accessories products in 2021 grew by 40.0% as compared with the same period in 2020. In 2021, 4G Antennas increased by 65.4% year-on-year, while 5G Antennas dropped temporarily due to market reasons.
2. For research and development
The Company recognizes that research and development represents the lifeline of a business, which is also the foundation to brace market competition and achieve an invincible position. Therefore, faced with a sluggish market, the Company continued with its research and development, the investments of which amounted to a total of approximately RMB89.9 million throughout the year.
In terms of radio frequency products, a total of 11 authorized inventions were secured throughout the year, representing an increase of 83% over the previous year. The development of proprietary nucleating agents was completed with small batch production. The product quality in general matched those available for purchase in the market, which is an exploratory tryout in the research and development of core materials. The increased foaming degree of large-scale cables improved the transmission rate and attenuation indicators of leaky cables as a whole, leading a significant increase in the material utilization rate.
In terms of wireless products, a total of 14 invention patents were filed and 36 new products were developed throughout the year. As a result, sales of new products amounted to approximately RMB318,680,000. The last two figures outperformed our annual plan.
In the China domestic market, except that connector products did not differ significantly from the same period last year, the shipments of other conventional products increased significantly as compared to the same period last year, of which the feeder cables products remained the biggest revenue contributor. In the second quarter of 2021, the Group’s successful bid for China Mobile’s 700M project led to a significant impact on the sales of Antennas and high-temperature resistant cables, providing a strong guarantee for the performance growth in the second half of the year and the first half of 2022. At present, the contract value of major domestic projects to be executed exceeds RMB1,300 million.
In 2021, the overseas marketing team of the Group overcame the obstacles brought by the COVID-19 pandemic by maintaining active online communications with customers to ensure the stability of the export market. Overseas sales other than India amounted to approximately RMB188.5 million, of which traditional feeder cables and component products remained stable, while the Antennas and leaky cable products increased significantly year-on-year. As for our customers, equipment manufacturers and operators fluctuated greatly, while the demand for agents remained relatively stable.
In the fourth quarter of 2021, the Group actively participated in the bidding for centralized procurement of telecommunications projects around the world, among which the project value of orders awarded in the Russian market over the next three years was approximately US$37 million, further emphasizing the important position of Russia among the Group’s strategic markets.
Due to the combined impacts of the slow construction of 5G base stations and the postponement of centralized procurement by operators, no revenue has been generated from the Group’s new small cell base project.
II. OUTLOOK FOR 2022
Extraordinary economic development is anticipated in 2022. From the international perspective, many believe that the pandemic will come to an end soon during the first half of the year and negative impacts on the economy will no longer extend despite the high number of COVID-19 cases. On the other hand, the rising inflation forces major developed nations to phase out their expansionary monetary policies and resort to the interest rate hike and austerity strategy, which, if ineffective, will lead to materially adverse impacts on the global economy. The impact of war and sanctions on the global economic and financial landscape is unpredictable. From the domestic perspective, amidst the noticeable downward pressure on the overall economy, the government is expected to adopt looser fiscal and monetary policies at the macro level, as well as counter-cyclical policies including infrastructure investments as economic momentum. Furthermore, it is also vital to implement industrial policies that encourage the revitalization of the manufacturing industry that pursues green and low-carbon development and safeguards the national economic security.
The Group believes there will lie ahead challenges and hopes in 2022. In terms of telecommunications business, the scale of fixed asset investments is still difficult to expand in the midst of increasingly fierce competition in the industry, with the continuing adverse effects brought by price fluctuations of raw materials and exchange rate appreciation. The Russia-Ukraine war has had a significant impact on the Group’s exports to the region, thus dragging down the Group’s entire export business. However, the telecommunications business as part of the infrastructure industry plays an increasingly important role in the 5G era, which not only serves as an important instrument bridging the gap between the metaverse, artificial intelligence and other emerging areas, but also continues to strengthen its penetration in to the traditional manufacturing industry and various aspects of social life with increasingly enriched application scenarios in line with the continuing popularization of the Internet of Things. This opens up enormous potential for our business development in the future.
In light of the market conditions and our own position, we shall implement the following strategies in our pursuit of objectives in the new year:
I. Single champion as our target
By focusing on three markets, namely, the rail transportation and core equipment manufacturer market, operator market and overseas market, we will craft and implement our action plan in order to become the single champion.
By focusing on three product lines, namely, leaky cables, radio frequency coaxial cables and jumper elements, we will strive to become a single champion in these three product lines to rank first in the industry.
II. Pragmatism for lean production
Besides further strengthening our 5G on-site management practice, we will follow through the just-in-time and Six Sigma methods, while utilizing the IIoT and 5G technologies to improve the level of digitalization and intelligence, quality and efficiency, and customer satisfaction, as well as to reduce inventories.
III. Expansion for our small cell base station business
To a chieve breakthroughs in our performance, we will proactively participate in normalized testing and centralized procurement organized by operators, while striving to develop private network (專網) fields and overseas markets.
IV. Actively look for targets for merger and acquisition in areas with long-term industry growth potential in the future, and strive to cultivate new profit growth points.