Quanchai Power: Opportunities for Minjiang Planning and Cooperation with Central Enterprises

Benefited subsidies, diesel engine demand has increased significantly

Quan Diesel Engine is mainly used for light trucks, construction machinery and agricultural machinery. The main downstream customers include Beiqi Futian, Jianghuai, Heli, FAW Hongta and others. In 2009, the sales of Quanchai Power's small-piston multi-cylinder diesel engine increased significantly, and it is expected that it will benefit from a subsidy of RMB 13.0 billion in agricultural machinery (significantly higher than in 2008), a subsidy policy for RMB 5 billion to the countryside, and implementation of the National III standard. 300,000 units, an increase of about 50% year-on-year. We expect that the subsidies for agricultural machinery will continue to increase significantly in 2010, and the sales volume of Quan Diesel Engine will continue to grow at a relatively fast rate.

Diesel engine profitability is not very strong

The cost of raw materials in Quanchai Diesel Engine's cost accounts for the majority, which is about 60% to 70%. Most of the castings are provided by the subsidiary Tianhe Machinery (which has been written off and transferred to Tianhe Machinery) and some are purchased locally; The major core components such as bearings and pumps all come from outsourcing. Quanchai's power products are in the midstream, and the ability to transfer upstream price increases is not strong. The gross profit margin of diesel engines continues to be around 9%, and profitability is not strong.

Quan Diesel Engine Production Layout

The Quanchai Power Division mainly produces 4-cylinder small-diameter diesel engines with a bore diameter of 108mm or less. It is mainly used for supporting light trucks such as Beiqi Foton, with a production capacity of 300,000 units. There are three subsidiaries in the development zone that produce diesel engine products.

Tianli Power was established at the end of 2006 and mainly produces 4108-6126 diesel engines (4-cylinder 108mm bore and 6-cylinder 126mm bore) for construction machinery, large scale agricultural machinery and generator sets. With a designed production capacity of 200,000 units and a current production capacity of 50,000 units in the first phase, the second-phase plant has been completed and some equipment is in place. After the Dalian machine tool is fully available in October this year, the total production capacity is expected to reach 100,000 units. In 2009, sales exceeded 10,000 units and sales revenue reached RMB 160 million. In April 2009, Tianli absorbed the subsidiary Shangchai Power.

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