yip's chemical 8corporate profile. 3 highlights 4th largest producer of acetate solvents in the...

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CORPORATECORPORATEPRESENTATIONPRESENTATION

(SEHK: 408)

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Presentation OutlinePresentation Outline

Core Businesses

Corporate Development

Financial Highlights

Growth Strategies

Corporate Profile

Investment Highlight

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CORPORATE PROFILECORPORATE PROFILE

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HighlightsHighlights

4th largest producer of acetate solvents in the world andlargest in China

China Focused – with 16 production plants in China

Focused on the core businesses of solvents, coatings andlubricants

A small-mid cap company (USD312 million as at 31 Aug 2007)with a track record for earnings and dividend growth

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MilestonesMilestones

� Founded in October 1971, then known as “Hang Cheung Hong”

1970s

� One of the first Hong Kong manufacturers to establish facilities in China bysetting up production facilities and providing a wide range of supporting services

1980s

� Continued to set up manufacturing bases and further expanded its sales networkto major cities all over the country to tap the domestic market in China

� Listed on the Stock Exchange of Hong Kong in August 1991 (Stock Code: 408)

1990s

� The Group’s 35th anniversary since founding, and 15th anniversary since listing,new corporate identity introduced

� 16 production plants in China and over 40 sales office covering all major citiesin China

2006

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MissionMission

To exploit business opportunities in the petrochemical industry with dedication and professionalism

To continually seek optimal returns for the benefit of our employees and shareholders

To be a good corporate citizen

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ChinaChina –– Our ArenaOur Arena

Headquarter

Locations of factories

Locations of sales outlets, representative offices, branch offices

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Business ModelBusiness Model

PRCSuppliers

OverseasSuppliers

PRCMarket

OverseasMarket

Yip’s ChemicalGroup

ManufacturersRaw

MaterialsEnd

Products

RMB Sales:80%

HK$ Sales:20%

85%

15%

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Product MixProduct Mix

Over 4,500 distributors nationwide

Construction, toys, furniture, electrical equipmentsproduction industries

BauhiniaDomestic architectural paints (50%), industrial paints (50%)

Direct sales, only a small portion goes to distributors for small factories

Shopping bags,F&B packaging industries.Major customers:Tingyi, Want Want

Bauhinia Variegata

Inks for plastic shopping bags,food and cigarette packaging

Direct salesPaper print industriesGolaxxoVarnishes – glossy coatings appliedon printed paper, cardboards

Direct salesPaints manufacturersDa ChangResins

Mainly direct salesPacoil General industriesSpecialty lubricants

Direct sales, distributors

General consumers,industrial plants

HerculesAutomotive, industrial lubricants

Toys, electronics, printing, furniture industries

Mixed solvents – thinners

Direct sales to manufacturers

Coatings, medicine,adhesives industries

N/A

Raw solvents – ethyl acetate,butyl acetate, mixed butyl acetate

Sales ChannelCustomersBrandsProducts

Solvents

Coatings

Lubricants

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The Solvents and Coatings businesses:The Solvents and Coatings businesses:A Natural Internal HedgeA Natural Internal Hedge

Acetate solvents prices reflect international supply and demand and volatilities in raw materials supply prices are passed on immediately,giving rise to opportunities for stock gains when raw material prices surge

Coatings uses solvents as one of their raw materials. Selling pricestypically lag raw material price trends

During times of raw material prices increase, solvents business benefits while coatings business adversely affected

When raw material prices decline, coatings will be the beneficiarywhile solvents adversely affected

With a good balance between the solvents and coatings businesses,the impact of raw material price volatilities is minimized

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CORE BUSINESSESCORE BUSINESSES

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Brands Operated under the GroupBrands Operated under the Group

I) Solvents

III) Lubricants

II) Coatings

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I. SolventsI. Solvents

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I. Solvents: OverviewI. Solvents: Overview

Manufactures 3 solvent products: ethyl acetate, butyl acetate and mixed butyl acetate

The acetates are relatively environmentally benign solvents, mainly used as raw materials for paints, inks, medicine, and adhesives

Normal gross margins 8-12%, profitability depends on production efficiency

Group’s interest of 75% and minority interests of 25% for the raw solvents division

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I. Solvents: Business HighlightsI. Solvents: Business Highlights

A world scale facility – capacity 210ktpa for raw solvents division

2006 production largest in China, 4th worldwide; will continueto enhance competitiveness through expansion and technology improvements

Dominant position yields competitive advantage in raw materials procurement, production efficiency and market power

2006/07 significant profit increase by 60%, in light of favorable operating environment for raw solvents and cost reductions through optimizing formulations for thinners

Acquisitions of a competitor (Shengda) adds 50ktpa capacity for raw solvents

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I. Solvents: ProspectsI. Solvents: Prospects

A 10-year lease with Jiangmen Bei Jie (JV) Power Plant ensuresthe continuous supply of steam at low cost, which is essentialfor acetate production; thereby enhancing competitiveness

Target to expand production capacity through facility upgrading, and continued pursuit of M&A

This business has been the most consistent profit contributor,and will stay robust

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II. CoatingsII. Coatings

Paints

Inks

Varnishes

Resins

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II. Coatings: OverviewII. Coatings: Overview

Both domestic architectural paints and industrial paints

Domestic architectural paints include water-based emulsion paints andoil-based paints

Industrial paints include paints for toys, furniture, electrical and electronicequipments, and corrosion protective coatings

Inks for plastic shopping bags, food and cigarette packaging

Growing business in Yangtse Delta, gained business with major customers– Tingyi, Wang Wang

Largest producer of plastic and gravure inks in China

Varnishes are the glossy coating applied on printed paper or cardboardsto give them a glossy finish

Leading supplier in Guangdong

Close to 1,000 loyal customers, including Hung Hing, Chung Tai, etc

Resins form the backbone of coatings, accounting 30-40% of cost of paints

Specializes in the production of resins for paints manufacturing

Over 100 loyal customers

Paints

Inks

Varnishes

Resins

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II. Coatings: Business HighlightsII. Coatings: Business Highlights

Coatings-related industries (real estate, publishing, packaging, light industrial products etc.) benefited from rapid growth of China’s economy

New inks plant in Zhongshan commissioned in July 2006;increasing capacity to 25,000 tons per year

HKD220 million Huiyang plant commissioned in October 2004, equipped with the most advanced facilities, including automated color-matching systems and a nationally accredited (CNAS) QC laboratory which also obtained RoHS accreditation. The plant was recently recognized as “2006 Guangdong Province-wide Advanced Enterprise in Production Safety”

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II. Coatings: Business HighlightsII. Coatings: Business Highlights

Strong brands support business development: Bauhinia awarded “China Top Brand” and “ Consumer Satisfaction Product of Guangdong Province”; Bauhinia Variegata Inks named “Consumer Satisfaction Product of Guangdong Province”

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China Top Brand

Famous Brand Award

II. Coatings: Award and RecognitionII. Coatings: Award and Recognition

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II. Coatings: ProspectsII. Coatings: Prospects

Group investing HKD100 million in capacity expansion for coatings business. Expansion for paints plants in Shanghai, Chengdu and Shantou expected to complete in 1H 2007/08. New coatings plant in Tungxiang, Zhejiang expected to complete in August 2008

Will carry out thorough evaluation of plant locations, manufacturing capacities, transportation, and warehousing to optimize logisticsand strengthen competitiveness

Recent shake-up in the industry due to entry of international players in paints industry. Group responds by putting more resources inmarketing to promote brand and corporate image

Most promising area for growth despite keenly competitive market, with domestic architectural paints segment poses higher growth potential

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III. LubricantsIII. Lubricants

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III. Lubricants: OverviewIII. Lubricants: Overview

Lubricants businessoperates undertwo subsidiaries

“Best Lubricants” focuses on

mainstream automotive and

industrial lubricants marketed

under the “Hercules” brand

“Yip’s Pacific”, a JV (Group’s interest: 60%)

formed in Feb 2005 with Pacific Oil Chemicals

(POC), focuses on specialty lubricants.

POC is a leader in specialty lubricants

in S. China with annual turnover

approximately RMB100 million

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III. Lubricants: Business HighlightsIII. Lubricants: Business Highlights

Acquired Shell’s interest in JV plant; the acquired is solely used for toll blending for Shell, while the original lubricants production is moved to an existing planting in Dongguan, thus reducing logistic costs and increase capacity utilization of the Dongguan plant

Marked improvement in turnover for industrial and specialty lubricants, achieving 12% and 4% respectively while gross profitmargins also strengthened

Specialty lubricants business of “Yip’s Pacific” offers excellentniche opportunity for profitable growth

Continue to seek performance improvement through synergy optimization

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III. Lubricants : ProspectsIII. Lubricants : Prospects

Restructuring of the business still in progress: simplification and upgrading of products portfolio, focusing development in industrial and specialty lubricants, and structural cost reduction – all beginning to bear fruit

Will continue to focus on developing industrial and specialty lubricants segments and control operating costs

Target to be profitable in the coming as base oils price stabilizes

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Beginning 1st April 2008, Group will implement new management

structure

The positions of Chairman of the Board and Chief Executive Officer will be separated and held by two individuals

The Board: Principal duties include setting policies, monitoring execution of such policies, providing assistance to overall management of the Group

Management Committee: Responsible in executing policies, implementing strategic plans, supervising business performances, ensuring targets set by the Board are met

Responsibilities of the two bodies are clearly separated, but will work closely together

Will significantly improve corporate governance and aide further expansion of the Group

Corporate DevelopmentCorporate Development

New Group Management StructureNew Group Management Structure

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FINANCIAL HIGHLIGHTSFINANCIAL HIGHLIGHTS

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Year ended 31 March (HK$’000)

+31%35.5 cents46.6 centsEarnings Per Share

+18%3,329,6703,913,835Turnover

+20%662,459792,598Gross Profit

-20%20%Profit Margin

+33%168,389223,636Net Profit Attributable

to equity holders

+43%14 cents20 centsFull Year Dividend

% change20062007

20062006--07 Annual Results Highlights07 Annual Results Highlights

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* Minority interests in Solvents and Lubricants businesses

–6%

+21%

+14%

% change

219,314

1,196,034

1,973,581

2006

205,524

1,442,874

2,241,251

2007

Turnover (HK$ ’000)Year ended 31 March

20062007

5%

37%

57%

% BreakdownYear ended 31 March

7%Lubricants*

35%Coatings

58%Solvents*

Product

20062006--07 Turnover by Product07 Turnover by Product

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20072006HK$ ’000

252,324

88,501

-6,384

80,568

157,262

-40,000

0

40,000

80,000

120,000

160,000

200,000

240,000

280,000

Solvents* Coatings Lubricants*

-296

* Minority interests in Solvents and Lubricants businesses

20052005--07 Segmental Profits07 Segmental Profits

155,483

53,674

-22,742

2005

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InterimFull Year

Track Record: TurnoverTrack Record: Turnover

HK$’,000,000

735892

1,356

1,761

2,062

1,423

1,799

2,678

3,330

3,914

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

2002/03 2003/04 2004/05 2005/06 2006/07

5 year CAGR of 28.60%

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InterimFull YearHK$’,000,000

62.4 60.2

76.0

93.9

128.4

103.296.2

123.2

168.4

223.6

0

50

100

150

200

250

2002/03 2003/04 2004/05 2005/06 2006/07

Track Record: Track Record: Net Profit Attributable to Equity HoldersNet Profit Attributable to Equity Holders

5 year CAGR of 30.10%

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P/E

Track Record: P/E RatioTrack Record: P/E Ratio

Earnings

10396

123

223

168

0

50

100

150

200

250

0

1

2

3

4

5

6

* P/E Ratio – Closing stock price as at 31 March each year / EPS from the past 12 months (trailing stock price)

Earnings Stock Price

2003 2004 2005 2006 2007

Stock price

8.5x6.8x6.6x 8.0x8.1x

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Interim

Dividend Per ShareDividend Per Share

HK cents Full Year

2.54 4 4.5 5

8

6

910

12

14

20

0

2

4

6

8

10

12

14

16

18

20

22

24

2001/02 2002/03 2003/04 2004/05 2005/06 2006/07

Example : If an investor bought the stock at $0.46 in September 2001, the cumulativedividend received would amount to 71 cents, for a total return* of 1,141%

# include special dividend of 2.0 cents* total return is based on stock price $5.00, closing price as at 31 August 2007

#

#

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GROWTH STRATEGIESGROWTH STRATEGIES

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Growth StrategiesGrowth Strategies

Continuous capacity expansions in solvents through organic growth or acquisition, and explore new product areas

New inks plant in Zhejiang, freeing up more space in Shanghai coatings plant for paints

Expansion for paints plants in Shanghai, Chengdu and Shantou

Continued restructuring of lubricants business, with stronger industrial lubricants positioning, and rationalization ofmanufacturing capacity

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INVESTMENT HIGHLIGHTSINVESTMENT HIGHLIGHTS

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Investment HighlightsInvestment Highlights

Focuses on the core businesses with good earnings quality

Dominant position in solvents

Natural hedge mechanism reduces volatilities and protects earnings

Maintains a high degree of transparency

Consistent dividend policy, without sacrificing growth

Prudent financial management

CAPEX for 2006/07 was HKD80 million; 2007/08 – estimated at HKD100 million and 2008/09 – estimated at HKD80 million (including Zhejiang inks plant, coatings optimization project)

Alignment of major shareholders’ interest with that of minority shareholders

Experienced management

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Investment HighlightsInvestment Highlights

A more sustainable growth rate:

� 2005/06 turnover growth 24%, gearing 28%

� 2006/07 turnover growth 18%, gearing 14%

The Group’s internal hedging mechanism dampens raw materials cost fluctuations, and contributes to more stable profit growth

Enhance net profit margins attributable to equity holders:

� 2004/05 whole-year : 4.6%

� 2005/06 whole-year : 5.1%

� 2006/07 whole-year : 5.7%

� Target 2008/09 : 6.5%

After major restructuring in operation, the lubricant business has achieved initial success, and will continue to improve this year

Will continue consistent dividend policy, payout ratio around 40% of earnings

Delivering the Promises:

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APPENDICESAPPENDICES

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First halfSecond half

Profit Attributable to equity holdersProfit Attributable to equity holders ofofthe Company before Nonthe Company before Non--recurring Itemsrecurring Items

HK$ millionFull year

-20

0

20

40

60

80

100

120

140

160

180

200

220

2403/87

3/88

3/89

3/90

3/91

3/92

3/93

3/94

3/95

3/96

3/97

3/98

3/99

3/00

3/01

3/02

3/03

3/04

3/05

3/06

3/07

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Consolidated TurnoverConsolidated Turnover

First halfSecond halfHK$ million

Full year

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,0003/87

3/88

3/89

3/90

3/91

3/92

3/93

3/94

3/95

3/96

3/97

3/98

3/99

3/00

3/01

3/02

3/03

3/04

3/05

3/06

3/07