As a leading enterprise in the mechanical sealing industry, Nissan Seals has benefited from the high growth of downstream business performance. Riji Seal is one of the strongest and most competitive enterprises in the research and development of China's mechanical seal industry. Its products focus on high-end sealing fields such as mechanical seals and dry gas seals, and are applied in downstream fields such as petrochemical, coal chemical, and power. Its gross profit margin remains above 55% for a long time. According to the company's announcement, in 2017, the company's revenue scale surpassed the Chinese subsidiary of international giant John Crane for the first time, ranking first in the domestic mechanical sealing industry.
Downstream petroleum refining and other industries are booming, and policies are promoting the acceleration of import substitution for high-end seals. Since the second half of 2016, international crude oil prices have steadily increased, and fixed investment in energy industries such as petrochemical and coal chemical industries has reversed. During the 13th Five Year Plan period in China, seven world-class petrochemical bases will be established to focus on the development of the "integrated refining and chemical" production model. A large number of petrochemical equipment will be purchased, resulting in a strong demand for mechanical seals. The 13th Five Year Plan for the Development of Hydraulic Fluid Power Dynamic Sealing Industry points out that in 2020, more than 60% of China's high-end liquid and gas sealing products will achieve independent protection, and policies will accelerate the process of domestic substitution. We expect the stock market of mechanical seals to reach 7.2 billion yuan by 2020. The company's customers include terminal customers such as PetroChina, Sinopec, and CNNC, as well as domestic host manufacturers such as Shenyang Drum and Shaanxi Drum. With the intensive investment and construction of downstream industry projects, industry demand will continue to be strong in the next three years.
Extension mergers and acquisitions integrate industrial resources, further enhancing leading advantages. The company continues to promote industry chain extension mergers and acquisitions, and in January 2017, it acquired Youtaike to enter the rubber and plastic sealing field. According to data from Zhiyan Consulting, the corresponding domestic market space is about 6 billion yuan, and horizontal mergers and acquisitions have broken through the industry ceiling limit. In addition, the company is currently actively promoting the acquisition of Huayang Seal. As the company's main domestic competitor, Huayang Seal will integrate industry resources to expand its product line and seize the high-end market in the industry. The company will collaborate with the acquired enterprise in technology research and development, market channels, brand building, and other aspects, further establishing the company's leading position in the sealing industry.
In Q1 2018, orders increased by 70% year-on-year, and the expansion of production capacity broke through the bottleneck of growth. Benefiting from the recovery of the downstream industry business cycle, the company's orders continued to grow at a high speed. As of the first quarter of 2018, the company had orders in hand of 491 million yuan, a year-on-year increase of 70.8%. The company is currently actively promoting the construction of mechanical seals and special pump production bases, while increasing investment in the construction of new factory buildings for Youtaike. It is expected that the company's production capacity will increase by more than 60% this year.
