Resilience and Growth of LESSO Amid Industry Challenges

China, 5th Nov 2024 - Against the backdrop of a weak global economic recovery, sluggish demand in China has posed significant challenges to various industries, particularly the real estate sector and its associated supply chains, which continue to operate at low levels. In such an environment, a company's resilience and innovation capacity become increasingly crucial. The ability to seek breakthroughs in adversity and identify new growth opportunities amid challenges has become a key measure of a company's competitiveness.

On August 29, LESSO released its interim report for 2024.

In the first half of the year, the company achieved a revenue of RMB 13.564 billion and a gross profit of RMB 3.728 billion, with a gross margin of 27.5%, remaining relatively stable compared to the same period last year.

Overall, the industry's downturn continues to have a negative impact on LESSO, in line with market expectations. Notably, through timely price adjustments and cost control, the company has maintained a stable gross margin, reflecting its strong market adaptability and highlighting its leading position and sound business strategy in the industry.

 

1. Focus on Core Business and Diversification of Pipe Products

An analysis of the company’s business structure reveals that "focusing on core business" has been the foundation of LESSO’s stable growth.

In the first half of the year, the company's plastic pipe system business generated a revenue of RMB 11.219 billion, accounting for 82.7% of the group’s total revenue, an increase of 2.7 percentage points compared to the same period last year. This was achieved through flexible sales strategies and effective cost controls, including optimized supply chain management, enhanced production automation, and advanced cost accounting systems, all of which helped reduce production costs and improve cost efficiency. As a result, despite weak external demand, the core business has remained stable.

At the same time, leveraging its leading position and refined internal cost control, the company ensured the gross margin of the plastic pipe business remained steady, with a gross margin of 29.5% in the first half, nearly unchanged from 30% in the same period last year.

Looking ahead, as the plastic pipe industry matures, the era of stock competition will inevitably lead to further concentration within the sector.

In this competitive market environment, leading companies like LESSO can capitalize on economies of scale to continuously reduce costs, while small and medium-sized enterprises may struggle to replicate such strategies. As outdated, low-end capacities are gradually phased out, market share will increasingly concentrate in the hands of industry leaders.

Moreover, under the theme of high-quality development, the market is becoming more mature. Poor-quality products will no longer find a foothold, and product quality will become the key to securing orders. Only industry leaders can ensure both quality and cost-effectiveness, allowing them to succeed in fierce market competition.

For industry leaders like LESSO, this presents a promising long-term growth opportunity.

Currently, the real estate sector remains at the bottom of its cycle, and its impact on the plastic pipe industry is unlikely to reverse in the short term.

In response, LESSO has actively pursued horizontal and vertical innovation across multiple fields, diversifying its pipe product offerings and developing new products to reduce its dependence on the real estate market. By tapping into high-potential sectors, such as hydrogen and oil pipelines, the company is expanding its market.

Take hydrogen pipeline as an example, under the guidance of carbon neutrality goals, the demand for renewable energy continues to rise. For hydrogen energy, storage and transportation technologies are key to its large-scale commercialization, driving corresponding market demand. It is estimated that by 2030, China’s hydrogen pipeline network will exceed 5,000 kilometers.

However, hydrogen transportation pipelines face several challenges, especially in material selection. LESSO’s innovative RTP flexible composite hydrogen pipelines meet industry standards, addressing a critical gap in the domestic market.

With its strong technical reserves and industry expertise, LESSO is well-positioned to provide high-quality solutions for hydrogen, oil, and other downstream applications, supporting industry upgrades while unlocking long-term growth potential for itself.

 

2. Going Global and Seeking New Growth Drivers

In the current global economic landscape, weak domestic demand has become a common challenge for many industries. In this context, companies are increasingly looking overseas for new growth drivers, and LESSO is no exception.

In the first half of the year, LESSO's overseas market revenue reached RMB 1.323 billion, a year-on-year increase of 15%, raising the share of overseas revenue from 7.5% last year to 9.8% this year. The core plastic pipe business also grew by 3.8% overseas, reaching RMB 522 million.

This demonstrates that LESSO’s overseas expansion strategy has become an important growth driver for the company.

To date, LESSO has established production bases in countries such as Indonesia, Cambodia, Thailand, and Malaysia, achieving localized production and sales.

LESSO has strategically focused on the Southeast Asian market, particularly in developing countries. These nations typically have younger populations and underdeveloped infrastructure, which presents significant potential for the construction and infrastructure industries.

Recognizing this, LESSO has accelerated its overseas market expansion, leveraging its strong technological capabilities and comprehensive product systems.

Unlike typical overseas expansions, LESSO’s strategy involves more than just exporting products; it also includes exporting technology, brand, and management expertise. By leveraging local resources and adopting asset-light and trade models, the company is advancing its localized brand development overseas.

LESSO plans to establish production bases in Tanzania and Vietnam to further expand its overseas market influence. Preparations for these facilities are progressing well, with the Vietnam base expected to be operational by Q4 2024, providing a new growth engine for the company’s global strategy.

Compared to overseas peers, LESSO has a strong product advantage. As one of the most comprehensive manufacturers in China’s pipeline and building materials sectors, LESSO offers over 10,000 high-quality products, widely used in home renovation, civil construction, municipal water supply, drainage, energy management, electricity, telecommunications, gas transmission, firefighting, environmental protection, agriculture, and marine aquaculture.

With a diverse business portfolio, LESSO is well-positioned to capture opportunities across various sectors, enhancing its global market share and overall influence.

The company has established over 30 advanced production bases in 19 Chinese provinces and overseas countries. Its extensive distribution network includes 2,891 exclusive first-tier distributors, ensuring timely and efficient delivery of a wide range of high-quality products and professional services to customers.

LESSO’s localized branding strategy not only boosts its local visibility but also strengthens consumer trust and loyalty.

 

3. Conclusion

In the short term, the complex external environment will continue to pose challenges to China's macroeconomic landscape, but the resilience of the economy indicates a long-term upward trajectory. Moreover, future macroeconomic policies will likely further stimulate market vitality and growth, creating a healthy development environment for various industries.

For companies, adapting to industry trends and minimizing the impact of external factors on business development is crucial.

LESSO has set a strong example, leveraging its advanced manufacturing capabilities to drive product innovation and add momentum to its high-quality growth. At the same time, it is capitalizing on the wave of globalization by expanding its localized presence in overseas markets, continuously enhancing its brand influence and expanding revenue sources.

As the global economy gradually recovers and the company's strategies are further implemented, we have every reason to believe that LESSO will continue to achieve sustainable growth through its robust strength and resilience.

 

Media Contact

Organization: LESSO

Contact Person: Benjamin Xian

Website: https://en.lesso.com/

Email: Send Email

Country:China

Release id:19448