Powering ahead through diversification

Hengshun Zhongsheng Group morphs from equipment maker to a global player in industrial parks, coal, nickel and ports

When Qingdao Hengshun Zhongsheng Group Co Ltd, a firm focusing on electric projects and equipment, listed on the Shenzhen stock market in 2011, it attracted the attention of investors straight away.

The company's more than 20 percent year-on-year growth since it was founded in March 1998 was already a talking point in the state-regulated power transmission industry.

The company makes and sells high-voltage reactive power equipment, compensation devices and filtering devices, with its products including capacitors, reactors and coil dischargers.

In 2012, when Hengshun was hit by a domestic glut in power transmission and control equipment and an economic slowdown, the company ventured into other businesses as well as overseas. It began by building industrial parks and power plants.

And it looks like these forward-looking initiatives are beginning to bear fruit. Profits are robust and its financials are sound, and investors are chasing Hengshun stock again.

The company, based in the eastern port city of Qingdao, calls the recent trend a "strong headwind in the cold winter".

Executives have seen profits rise from 109.5 million yuan ($16.4 million; 14.7 million euros) in 2014 to 338.6 million yuan last year, a 209.2 percent increase year-on-year.

Jia Xiaoyu, the president of Hengshun, attributes the growth to the decision to diversify its core businesses and become an overseas developer of industrial parks, coal mines, power plants and ports.

"How do you define an 'owner' of a project? I think the one that can bring you the profit is the owner, regardless of which industry it comes from," Jia told reporters two years ago. He was referring to a series of recent deals the company had struck.

The range was as imaginative as it was wide, Jia says. The deals were for investing in nickel ore in Indonesia and building industrial parks in Africa - all seemingly unrelated but capable of funneling gold into the company coffers.

That kind of bold expansion may not have been possible without the foresight of Jia. He predicted several years ago that China's state-controlled utilities would face oversupply sooner or later as a severe and prolonged recession in the construction sector put immense pressure on the infrastructure construction sector.

In 2014, Jia was looking at opportunities in Indonesia when the country banned exports of mineral ore in order to develop its own ore-processing technologies.

He decided to stock nickel ore reserves and develop a ferronickel industrial park, as the export ban was expected to drive up huge demand for nickel ore in China, a major importer of Indonesia's nickel ore.

But the company took a leap on the back of China's Belt and Road Initiative, which opened up new opportunities in South and Central Asia, the Middle East and Europe.

As Beijing strengthened bilateral cooperation with Jakarta, Hengshun and two other Chinese companies teamed up to build a ferro-nickel industrial park in Indonesia, exploiting their collective experience in nickel exploration and inventory.

This also helped the companies build factories and captive power plants in industrial parks in Indonesia.

Last year, Hengshun struck a deal to build a special economic zone and an industrial park in Zimbabwe to further stimulate the African country's economic development and transformation.

What attracted Hengshun was that foreign investors in the Zimbabwean zone were accorded several preferential policies and allowed to build industrial parks and factory shells to rent out to other companies.

"We started investing in the overseas market in 2011," Jia says. "Over the years, we've gathered much experience in industrial park investment, development, attracting business and operations."

The company now plans to use this business model in South Africa, Laos and Thailand.

In November, Hengshun signed an agreement worth $114 million with Coal of Africa Ltd, a mining company in South Africa. Its Makhado coal project, in the northernmost province of Limpopo, has a gross reserve of 790 million metric tons and a recoverable reserve of 340 million tons. The project is expected to start next year, and will likely yield 12.6 million tons of raw coal a year, according to Hengshun.

Lin Boqiang, head of the China Center for Energy Economic Research, which is under the aegis of Xiamen University, says many industries in China are facing pressure from oversupply, while countries like Indonesia and Zimbabwe are in huge demand of energy and infrastructure construction.

"In terms of going global, most companies would take the mergers and acquisitions route to market share, or leverage their core businesses. But sometimes, we need to think outside the box and look at what we are good at and what they can provide," Lin says.

Contact the writers at lvchang@chinadaily.com.cn

(China Daily Africa Weekly 08/19/2016 page29)