PKC Group has signed a frame agreement on 28 March 2015 to establish a joint venture with Jiangsu Huakai Wire Harness Co. Ltd. (Huakai). The joint venture shall increase PKC’s market share in medium and heavy trucks segment in China by 8%-points and expand clientele with significant new customers.
The joint venture shall comprise Huakai’s current business. Huakai develops and manufactures electrical distribution systems to truck, construction vehicle and bus segments in China. The key customers are Foton (and Beijing Foton Daimler Automotive), Kinglong and Iveco. Foton is the fourth biggest truck manufacturer in China with 11% market share in 2014. In 2014 Huakai revenue totalled EUR 43 million with current exchange rate, profitability is at healthy level and at the end of the year employees amounted to 680. Huakai is a private company owned 100% by family Gu.
The joint venture is accomplished through a new company that will be established by Huakai in Danyang, Jiangsu province in China with an equity value of RMB 150 million / EUR 22 million. PKC contributes RMB 150 million / EUR 22 million via share issue to be financed from PKC’s cash resources. After the capital increase the total equity value of the joint venture is RMB 300 million / EUR 44 million and PKC owns 50% and Huakai 50%. The frame agreement contains specific terms regarding PKC’s right to consolidate.
The joint venture with Huakai is in line with our strategy published in spring 2013. China is the world’s largest commercial vehicle market and it is forecasted to continue to grow. With the joint venture PKC’s market share in medium and heavy trucks segment in China increases by 8%-points. Chinese government has required all trucks to comply with Euro 4 emission standard and to have ABS brakes since the beginning 2015. Tighter emission and safety regulation and higher end customer demands raise wire harness content and complexity. PKC will provide the joint venture with advanced development and manufacturing technology required to meet the new more demanding customer demands, including the demands triggered by the Euro 5 and Euro 6 emission standards and the electrification of commercial vehicles in the future. By combining PKC’s and Huakai’s strengths we can offer competitive solutions to Chinese commercial vehicle market.
Huakai has grown during the last ten years and strengthened its position within Foton and other Chinese commercial vehicle customers. At the same time the new market regulations and end customer customisation have raised the demands from our clientele. We believe that with the help of PKC’s technology we can meet customer expectations and grow further. In terms of new business, the joint venture has already got preliminary acceptance to start supply engine wire harnesses to JMC trucks. I am confident that with the help of PKC the joint venture has capability to invest in the growth therefore meeting customers’ future needs. I should also note that I am glad to start as a CEO of the joint venture company and to join the PKC family.