Cheng Shin plans to spend production for increased demand

Cheng Shin Rubber Industrial Co (正新輪胎), the world’s ninth-largest tire maker, said yesterday it plans to spend US$500 million this year because of growing demand.

The company plans to build new factories in Yunlin County, as well as in Indonesia and China’s Chongqing and Fujiang provinces, vice president Wu Hsuan-miao (吳軒妙) said.

“Our utilization rate is close to 100 percent and there is no way to see significant revenue growth unless we expand our capacity,” Wu said at an investors’ conference in Changhua County.

The company did not elaborate on its capacity expansion, adding that the plan has not yet been approved by its board members.

Cheng Shin is confident it will acquire 30 hectares of land in Indonesia this year on which it plans to start building a factory next year to cut costs.

In the second half of last year, sales to the Asia-Pacific region dropped because of depreciation of the Indian rupee and the Indonesian rupiah, which increased the costs of imported goods in the two countries by 20 percent, Wu said.

Last year, Cheng Shin saw revenue increase 2.36 percent to NT$133.31 billion (US$4.42 billion) from NT$130.24 billion in 2012, while its gross margin rose to 26 percent last year from 24 percent a year earlier because of declining raw material costs.

Net profit was NT$18.55 billion last year, up 16.45 percent from NT$15.93 billion the previous year, the company said.

This year, Cheng Shin said it aims to post 10 percent revenue growth in China, where sales accounted for 60 percent of the company’s overall revenue last year.

Car manufacturers in China distributed 22 million new cars last year, and Cheng Shin sold about 10 million tires for 2 million cars, the company said.

Cheng Shin also expects sales in the Middle East, which accounted for 5 percent of the company’s total revenue last year, to increase by 20 percent this year.

The company sold 4 million tires in the Middle East last year, it said.

Cheng Shin will start distributing winter tires in Europe this year, it said, adding that the winter tire segment accounts for one-third of the European market.

Sales to Europe accounted for 5 percent of Cheng Shin’s revenue last year, it said.

Cheng Shin shares dropped 0.34 percent to NT$88.7 yesterday, underperforming the TAIEX, which was up 0.13 percent.