Wenzhou, Zhejiang – Huafon Spandex, the listed elastane arm of Huafon Group, has been questioned by the Shenzhen Stock Exchange.
The probe follows a deal where Huafon Spandex absorbed of the group’s PU resin and polyester polyol subsidiary Zhejiang Huafon New Materials (ZHNM) at a 222% premium.
The Stock Exchangewas also interested in the profitability of the new materials subsidiary.
Huafon Spandex claims that ZHNM is China’s PU resin market leader with a 57% share in 2017 and a 63% share in 2018. The numbers come from a company filing in July in response to hte questions.
Last year ZHNM sold 336 kT PU resin. Sales of shoe sole resin to customers such as Nike, Adidas, Skechers, Asics, LiNing and other footwear heavyweights accounted for the bulk of this volume.
Its resin business saw a 14% rise in sales to CNY 5.6bn ($815m) in 2018 with 21% gross profit margin, said the filing.
In total Huafon sold 133 kT polyols in 2018. This is up 12% in value to CNY 1.5bn. Huafon said gross profit margin was 23%.
ZHNM has also expanded into upstream material adipic acid. It did this through the acquisition of Chinese producer Chongqing Chemical in 2016. Subsequently, it has become the country’s largest maker of the material with 480kT/year capacity today. The company is planning a further 255kT/year.
ZHNM claimed 31% of the market last year up from 25% in 2017. Key customers include Invista, BASF and Wanhua.
Revenue in the adipic acid business grew by 89% to CNY 2.7bn in 2018. This generated a gross profit of 29% of sales.
‘ZHNM has a stable, loyal client base, most of which has been doing business with it for several years,’ said the filing.