Jinjiang, China -- China Ceramics Co., Ltd. announced its financial results for the six months ending June 30, 2019.
Revenue for the six months ended June 30, 2019 was ¥177.4 million ($26.2 million), as compared to ¥355.6 million ($55.9 million) for the same period of 2018. The 50.1% year-over-year decrease in revenue was due to the 48.0% decrease in sales volume to 6.6 million square meters of ceramic tiles for the period compared to 12.7 million square meters of ceramic tiles for the same period of 2018.
Gross profit for the six-month period was ¥15.3 million ($2.3 million), as compared to gross profit of ¥44.8 million ($7.0 million) for the same period of 2018. The gross profit margin was 8.6% as compared to a 12.6% gross profit margin for the same period of 2018. The decrease in gross profit margin for the six months ending June 30, 2019 was due to the 48.0% decrease in sales volume from period to period.
Loss per basic share and fully diluted share were ¥32.23 ($4.75), as compared to loss per basic and fully diluted share of ¥17.23 ($2.71) for the same period of 2018. Basic and fully diluted per share calculations for the six months ended June 30, 2019 was computed using 5,993,605 ordinary shares outstanding, and the basic and fully diluted per share calculations for the same period of 2018 was computed using 4,172,926 ordinary shares outstanding.
In an effort to bolster sales, in July of 2018, the company decreased the pricing of its ceramic tile products by an average of 10%. This followed a pricing increase of 5% that was instituted in April of 2018 following three price raises beginning in April of 2017. However, the 10% price decrease in July 2018 did not offset the fall in sales volume due to deteriorating market conditions that persisted through the second half of 2018, and the company does not believe that further price decreases would have had a beneficial effect upon sales volume. Accordingly, the company did not implement any price adjustments for its ceramic tile products in the first half of 2019.
To address the current market environment, China Ceramics has announced plans to enter the ceramic tile market in Southeast Asia and that it is negotiating with customers in the first target market of Malaysia. The company also plans to expand its sales force to procure new customers and to increase its marketing to large property developers in targeted cities. In addition, the company has bolstered its research and development efforts with the goal of developing new products in order to expand its market. As a result of this last initiative, the company has recently announced that it has developed a new type of exterior ceramic tile designed to cool temperatures of buildings which, once fully tested and certified, will target the Southeast Asia market.
Looking ahead to the remainder of 2019, and based on the information currently available, the company expects market conditions to continue to be challenging due to a slowing domestic economy as well as an excess supply of housing stock in some of China's cities. Also, the current trade war between China and the U.S. could lead to slower growth in China which could have the effect of contracting real estate development.
As has occurred in the past, the central Chinese government will likely continue to balance imposing restrictions to prevent any overheating of the real estate sector by providing incentives to encourage stable demand. The Chinese government continues to discourage real estate speculation and is therefore advocating for more rental housing and "joint-ownership housing," homes that are co-owned by individuals and the state.
The company believes that real estate in China is sustainable on a long-term basis as it accounts for an estimated 25% of GDP and is the most important asset for a high proportion of Chinese households. Therefore, active property development and a vibrant building materials sector continue to be a vital component of China's growth. As property developers were very active in terms of land acquisitions in the first half of 2019, the company predicts a possible increase in new construction in the second half of the year, though the central Chinese government may eventually tighten developers' financing to curb a possible overheating of the land market.
China Ceramics believes that as China's urbanization trend underpins its continued economic growth, it anticipates the continued growth of urban housing and a sustained demand for its building materials products. The company believes that it retains a competitive advantage in the sector due to brand name recognition, innovative ceramic tile products, customization capabilities, and its ability to quickly and expertly meet customers' needs.
"For the second half of 2019, we believe that market conditions will continue to be challenging due to the slowdown of China's economy and possible government regulations intended to rein in real estate speculation," said Meishuang Huang, CEO of China Ceramics. "However, we believe that our building materials sector will continue to benefit from urbanization and real estate property development which are both vital to China's continued growth. Our strategic plan is to focus on targeted cities in China as well as to grow our new products portfolio by bolstering our research and development efforts in order to expand our market. As announced, we intend to enter new markets in Southeast Asia where we believe that the marketing of our existing products and our new ceramic tiles that cool building interiors will be successful."
This business outlook reflects the company's current and preliminary views, which are subject to change and is subject to risks and uncertainties, as well as risks and uncertainties identified in the company's public filings.
For more information, visit www.cceramics.com.