Marketing Strategy

The Group has successfully attained a leading position in the market for safety and emergency control systems of the petrochemical, oil and gas, and chemical industries in China.  Given the continuous growth in the petrochemical, oil and gas, chemical, and railway transportation industries, demand for safety and emergency control systems will also grow as a result of the continuous construction of new production facilities and upgrading of existing production facilities by downstream industries.  The Directors also believe that the Group’s safety and emergency control system have market potential for other industries, including iron, steel, electricity generation and nuclear power.

The Group’s overall business objective is to strengthen its leading position in the automation systems market in the petrochemical, oil and gas, and chemical industries in China.  The Directors believe the Group’s strong engineering capability and sales network to be the keys to its success, and intend to further strengthen the Group’s engineering capability and sales network.  The Directors also intend to enlarge the Group’s market share by promoting the applications of its safety and emergency control system to different industries and expanding its strategic business cooperation with its major suppliers.  Details of the Group’s future plans are as follows:

‧ Enhance engineering capability

To maintain its leading position in the market for safety and emergency control systems in the petrochemical, oil and gas, and chemical industries, and to further develop its business, the Group intends to enhance its engineering capability by recruiting more system engineers to cope with fast growing markets in China and overseas..

‧ Enhance research and development capability

The Directors believe that research and development are especially important for enhancing the Group’s product development capability and technology level..  As such, the Directors intend to establish a research and development centre for the product development and testing.  The Directors believe that one of the key factors in the Group’s success is to improve the qualities and technical capabilities of its products through continuous investment in research and development.  The Directors also believe that, to maintain the Group’s market leadership and reputation for quality and innovation, continuous investment in product development is a must.  The Group intends to invest at least RMB50 million in research and development in the coming years, of which RMB40 million to be invested in new software products research and development will be funded with the net proceeds of the Share Offer.  The software products are of strategic importance to the Group and include but not limited to (i) a single channel on-site application model of controllers; (ii) a double channel redundant control system with safety accreditation; (iii) a fire and gas protection and control system conforming to the national fire-fighting standards of China for oil refining and petrochemical enterprises (iv) an on-site controlling intelligent implementation organisation system; and (v) other software systems, including a regional interlocking system, a train number tracking and wireless scheduling system, and a metallurgy enterprise railway transportation information and comprehensive scheduling system,  These research and development expenses will mainly comprise the salaries of research and development staff, travelling expenses, materials and accessories for research and development, and depreciation in research and development facilities.  The Group currently expects the above research and development projects to be completed in the coming five years, although the specific timing and scale of the investment by the Group in these projects will depend on a number of factors, including the degree of success in achieving its research goals and market forces..

‧ Expand the production base

The Group has planned to establish a new production base to commence operation in January 2009.  For this purpose, the Group has acquired a land parcel located in Section B of Tianzhu Airport Industrial Zone, Shunyi District, Beijing, China, for establishing the new production base..  The land price, approximately RMB17.6 million, was paid in full in January 2007.  It is anticipated that the new production base is expected to commence operation shortly and the existing production base will cease operation in 2009.  As such, the new production site is expected to replace the existing site as the place for conducting all of the business activities currently carried out on thereon..

The Group intends to build a new and permanent complex building comprising production facilities, office premises and a research and development centre.  Located in the vicinity of the Beijing Airport Industrial Development Zone, the new land site is only 3 km from the airport and 1 km away the newly built Beijing International Exhibition Center.  To cope with the anticipated fast growing business in the coming years, the Group is planning to increase the size of its existing production facilities upon completion of the construction works on the site.  The new complex building will occupy 50% of the land site, and will be able to meet the requirements of the Group’s business development in the coming years.  The planned production facilities will (i) satisfy the needs of the Group to deliver approximately 500 sets of systems; (ii) accommodate approximately 1,500 to 2,000 sets of cabinets in the factory each year; and (iii) provide work space to approximately 280 engineers in engineering department.  In addition, the Group’s relocation to the new complex building will save a rental cost of approximately RMB2 million which is currently incurred every year..  Besides, the research and development centre will form only a small part of the new complex building with an expected area of only 10% of the total floor area..

The total development cost of the new complex building is estimated at approximately RMB58 million, of which approximately RMB17.6 million will be the acquisition cost of a parcel of land in Beijing and was already paid in full in January 2007, while the remainder, approximately RMB40 million, will be construction costs.  The Group has already paid the land cost of approximately RMB18 million in full from its internal resources, and the remaining approximately RMB40 million will be funded with the net proceeds from the Share Offer.

The Group will select a qualified construction company through an open bidding process and based on their designs.  First class construction companies will be invited to bid for the project.  At the final stage, the Group will select a developer based on strict technical and commercial evaluation.  To ensure that the quality standards and the project schedules are met, the progress of all construction works will be monitored by a reputable and experienced supervision agent in China.  

‧ Expand the sales and marketing network

The Directors plan to expand the Group’s sales and marketing network in China to capture even more market opportunities.  The Group plans to set up a liaison office in Chengdu, and a service centre in Shenyang and in Urumqi.  The Group also plans to set up an online procurement and e-commerce platform to sell system modules and spare parts.

‧ Expand the applications of safety and emergency control systems

With its expertise and experience in safety and emergency control systems for the petrochemical, oil and gas, and chemical industries, the Group will endeavour to expand the applications of its systems to other industries including the iron and steel, nuclear power, electricity generation and other processing industries.  The Group will actively promote safety awareness, facility protection, and the application of its safety and emergency control systems in different industries in which the Group sees the market potential for its products.

‧ Continue to expand internationally

Having already been engaged in the provision of safety and emergency control systems and related engineering services in Middle East and Asia Pacific countries, including Japan and Singapore, the Group intends to set up branch offices and expand its engineering services to overseas markets such as Southeast Asia, the Middle East and North America, and assign its experienced engineers to provide quality engineering services there.  In this respect, the Group has founded a subsidiary in Singapore and is planning to set up another subsidiary in Dubai.

The Group has planned to draw on approximately HK$30 million to establish offices and/or project centres in Dubai and in Calgary, Canada.  At present, the Group has sent its staff to the Middle East and Canada so that they may preliminarily familiarize themselves with the local circumstances and operating environment, as well as the relevant laws, regulations and procedures for establishing offices and/or project centres in the localities.  Currently, the Group plans to commence operation in the above cities within three to six months after the listing of the Company, mainly focusing on providing safety system engineering services to local petrochemical users and engineering companies.

‧ Pursue strategic acquisition

To expand with horizontal and/or vertical integration, the Group will find opportunities to merge with, acquire or own companies having strong research and development capability..

The Group has planned to apply approximately HK$60 million to fund its possible mergers and acquisitions in the coming years.  At present, the Group has no definitive investment targets.  The Directors have formulated a general direction and preliminarily established guidelines, aiming to focus on its operation of its mainline business and to conduct acquisitions by parallel integration in the industry. The principal investment direction is : (i) to focus on the Group’s RIS business, which is currently developing fast with high profit growth, by acquiring competitors in China, thereby winning for market share and then becoming a market leader; and (ii) to focus on the Group’s existing ITCC business by acquiring low-end product business and technology-driven companies in China, and enhancing their sales network, research and development capability, and technology level, so as to become an integrated solution provider of completed range of ITCC products.  The Group’s current plan is to seek acquisition targets within three to twelve months after the listing of the Company.  The Group is currently in discussion with a number of potential acquisition targets which are engaged in the sale of control systems and considered by the Directors to be capable of mutually complementing with the Group’s current product range.  If an appropriate acquisitions can not be carried out in the coming years, the original plan for use of proceeds will be changed and the proceeds will be applied (i) as to approximately RMB30 million for repayment of the Group’s bank borrowings which is currently charged interest at a rate of 6.57% per annum and will mature in December 2007; and (ii) as to approximately RMB30 million for setting up its own business/companies (the original plan is to set up a business/company to carry out acquisition), i.e. (1) the RIS business, which is currently developing fast with high profit growth; and (2) a low-end product business and technology-driven company engaging in the ITCC business.