Yip’s Chemical says toy recalls may boost paint sales

“In recent weeks we have been getting a lot of enquiries for samples so that the manufacturers can test them on their toys,” Robert Young, an executive director of Yip’s Chemical, said in an interview in Hong Kong today.

“A lot of them will translate into orders. In the long term, we expect maybe a 20 to 30 percent upside in the toy paints business,” now 10 percent of Yip’s Chemical’s sales. He didn’t provide a time frame for the forecast.

China, the world’s biggest exporter of consumer products, is under pressure to strengthen safety checks after products from contaminated toothpaste to tainted pet food and 18 million Mattel toys with small magnets were recalled.

The nation last month announced a four-month campaign to weed out defective products and repair damage to Chinese brands. It agreed to increase inspections at factories, and the U.S. said it would address China’s concerns that problems with imported toys often come from faulty designs by U.S. toymakers.

Hong Kong-based Yip’s Chemical was rated by Forbes as one of Asia’s best companies with a market value of less than a billion dollars in 2005. Net income rose to a record HK$223.6 million (US$29 million) last year.

“We expect Yip’s Chemical to be a key beneficiary in this flight to quality,” said SBI E2-Capital analyst Kennedy Tsang in a Sept. 5 report. He rates Yip’s Chemical shares a buy.

The company plans to expand its solvent business through acquisitions and ventures. It is looking for partners to expand into new geographic markets and add products in ethanol, acetic acids, and ketones, a compound used in making solvents, paints and perfumes.

Solvents are the biggest contributor to Yip’s Chemical’s sales, accounting for 57 percent of revenue last year. Young said he expects that proportion to rise to 60 percent this year.

Yip’s Chemicals sells 95 percent of its solvents to paint and ink makers, including Netherlands-based Akzo Nobel NV, the world’s biggest paint maker, and CNT Group Ltd., a Hong Kong-listed paint maker partly owned by billionaire Li Ka-shing’s Cheung Kong Holdings Ltd.

The solvent and paint maker’s shares have climbed 72 percent over 12 months, beating the 51 percent gain of the benchmark Hang Seng Index. The stock gained 1 percent to HK$5.20 at 2:49 p.m. in Hong Kong Monday.

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