KUALA LUMPUR: China Automobile Parts Holdings Ltd (CAP) and SRI Elastomers Sdn Bhd will jointly invest US$3 million (RM11.07 million) in a rubber-scrap recycling plant in China to tap the huge demand there for recycling rubber tyres and rubber waste products.

CAP (fundamental: 1.95; valuation: 1.8) managing director Li Guo Qing said the plant will be set up in Fujian.

“We are not sure yet on the percentage of investment that each party has to cough up. We have to take into account the composition of debt and equity,” Li told reporters yesterday after signing a memorandum of understanding (MoU) on the JV.

CAP is currently involved in the manufacturing of chassis components used in automobiles for transporting goods. Its product portfolio includes wheel-hub bolts, wheel axles, steel pins, u-bolts and torque-rod bushings.

Li said the MoU will allow CAP to broaden its revenue base by capitalising on its existing relationship with China-based automobile companies.

SRI chief executive officer Gopinath B Sekhar said the plant will have an installed capacity of 10,000 tonnes a year and is scheduled to start operations within nine months of the JV agreement being finalised.

“We will need nine months to construct the plant and set up equipment,” he said.

Li said there is a huge demand in China to recycle rubber tyres and other rubber waste products. Demand for rubber products in the country is projected to grow 8.8% per year to 740 billion yuan (RM440.73 billion) in 2017, he said, underpinned by the healthy growth in manufacturing production, especially in the industrial machinery and motor vehicle industries.

“We see strong demand gains for both consumer automobiles and other vehicle types,” said Li.

“China being the world’s biggest automobile market represents a huge demand for this technology. There is an enormous gap in the market for those looking for ways to dispose of used tyres,” he said.

As China is very supportive of environmental technology, Li said, the Chinese government has provided tax incentives to companies that adopt such technology and so CAP will apply for the incentives once the JV agreement has been finalised.

“It is not difficult to apply as China is supportive of this [environmental technology],” said Li, adding that the firm will apply to both the central and provincial governments.

He said CAP had decided to partner SRI because the latter has the relevant competency in rubber recycling technology, which is not available in China yet.

“We expect this JV to open doors for CAP to tap the rubber industry in China,” he said.

Meanwhile, Li said, the results of CAP’s application for a dual listing in Hong Kong, apart from Malaysia, will be made known in the second half this year.

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This article first appeared in The Edge Financial Daily, on March 19, 2015.