In fact, Sunward launched its private placement plan as early as 2011. After several adjustments, the scheme was finalized as a non-public offering of no more than 120 million shares at 8.31 yuan per share, with proceeds earmarked for major technical upgrades of large piling machinery, major technical upgrades of medium and large excavators, and replenishment of working capital.

However, as the overall A-share market remained sluggish and the construction machinery industry cooled, the company's secondary-market price has been severely below the issue floor price for the past two years, repeatedly obstructing Sunward's private placement plan.

Chairman He Qinghua, however, took it calmly. “Because the macroeconomic situation has caused the share price to fall below the issue price, the company is well prepared. Even if the placement is delayed, Sunward has sufficient cash flow to ensure stable growth. Of course, completing the placement in a timely manner would help reduce financial expenses and accelerate the R&D process for some new products.”

At the same time, He Qinghua said at the extraordinary general meeting that Sunward will achieve growth in both output value and profit next year, with the growth rate depending on the extent of market share expansion.

The source of his confidence is the endogenous growth path the company has chosen in recent years. He Qinghua said that endogenous growth means, on the one hand, the company has adopted a group-based management and control model, centralizing management authority; on the other hand, the company has accelerated the pace of independent R&D.

Targeted Management and Control Significantly Improve Financial Reports

According to He Qinghua, Sunward's business objective for 2013 was “to achieve profitable growth on the basis of standardized management.” Internal control management specifically covers four areas: finance, marketing, procurement and manufacturing.

In finance, centralized management is applied to holding companies and business divisions, with funds uniformly scheduled and operated, greatly enhancing the controllability and effectiveness of capital operations; in marketing, channels are divided into direct sales and agents, with direct sales further refined to build a marketing brand for the entire group, while agents are given different treatment policies according to their tier; in procurement, the group implements unified purchasing, and the company is stricter in selecting suppliers, adopting a survival-of-the-fittest system based on factors such as overall quality, price and delivery time; in manufacturing, the group-based operating model is further improved by merging related manufacturing categories.

It is worth noting that several financial indicators in Sunward's third-quarter report improved markedly, reflecting the effectiveness of these controls.

The quarterly report shows that in the first three quarters Sunward achieved operating revenue of 1.658 billion yuan, up 3.56% year on year, and net profit of 52.35 million yuan, up 130.48% year on year. The company also issued its annual earnings forecast, projecting net profit growth of 150% to 200%.

The company said the construction machinery industry has not seen a clear recovery, and the projected growth in 2013 results is mainly attributable to the company's strengthened expense control.

Data show that Sunward's selling expenses in the first three quarters were 148 million yuan, down 16% from a year earlier; administrative expenses were 121 million yuan, lower than the same period last year. Net cash flow from operating activities was 249 million yuan, an increase of 430 million yuan over the same period last year. The company said this was mainly due to stepped-up collection of accounts receivable and increased cash recovered from sales of goods.

R&D Advantages Translated into Output Value

Statistics from the 2013 third-quarter reports show that the 12 listed companies in the construction machinery industry posted total operating revenue of 113.9 billion yuan, down 19% year on year, and net profit down 47% year on year.

“In such an environment, it is rare for us to still maintain growth this year. It is fair to say our R&D strength is very prominent in the industry,” He Qinghua said.

The E-series excavators newly launched by Sunward this year have been further upgraded in terms of “high efficiency and energy saving,” with fuel consumption reduced by 18% and operating efficiency improved by 18% compared with the previous generation, while safety, reliability, driving comfort and operability of the whole machine have also been significantly enhanced. It is reported that Sunward's full range of excavators has now been upgraded to the E series.

“Sunward excavators are known for high efficiency and energy saving, and leveraging this advantage we have recently made progress in the military industry as well,” He Qinghua said.

According to him, in a recent military tender for plateau mini excavators, Sunward's excavators ranked first overall on all indicators in extreme cold and oxygen-deficient environment tests and won the bid, marking a key step for Sunward into the military industry.

In addition, with the opening of low-altitude airspace this year, Sunward Technology, which has a first-mover advantage in light sport aircraft, has gradually begun to turn a profit. It is understood that Sunward Yacht's Yangjiang base will also go into production next year.

Market analysts note that although Sunward currently holds only 13.48% and 25% stakes in Sunward Technology and Sunward Yacht respectively, as the profitability of these two companies continues to strengthen, the possibility that the listed company will increase capital and take a controlling stake cannot be ruled out.