Category: Finance

GHW International (“GHW International” or the “Company”, together with its subsidiaries, the “Group”; stock code: 09933.HK), an applied chemical intermediates provider in the integrated services market, today announces details of the global offering (the “Global Offering”) and its proposed listing on the Main Board of The Stock Exchange of Hong Kong Limited (the “Stock Exchange”).

The Company intends to offer 250,000,000 shares (the “Offer Shares”) (subject to the Over-allotment Option) under the Global Offering, comprising 225,000,000 Placing Shares (subject to the Over-allotment Option and reallocation), and 25,000,000 Public Offer Shares (subject to reallocation), representing 90% and 10% of the Offer Shares, respectively. The Offer Shares will represent 25% of the Company’s enlarged issued share capital immediately after completion of the Global Offering and the Capitalisation Issue, without taking into account any Shares which may be issued pursuant to the exercise of the Over-allotment Option and the exercise of any option which may be granted under the Share Option Scheme.

The Offer Price will be no more than HK$0.65 per Offer Share and is currently expected to be not less than HK$0.51 per Offer Share, unless otherwise announced. The Offer Shares will be traded in board lots of 4,000 Shares each. Applicants for Offer Shares under the Public Offer are required to pay, on application, the maximum offer price of HK$0.65 for each public offer share, plus the brokerage SFC transaction levy and Stock Exchange trading fee, amount to a total of HK$2,626.2 per board lot.

Fortune Financial Capital Limited is the Sole Sponsor of the Global Offering, while Fortune (HK) Securities Limited and Head & Shoulders Securities Limited act as the Joint Global Coordinators. Fortune (HK) Securities Limited, Head & Shoulders Securities Limited, I Win Securities Limited, SPDB International Capital Limited and First Shanghai Securities Limited act as the Joint Bookrunners and Joint Lead Managers. Alpha International Securities (Hong Kong) Limited, Chung Sun Securities Limited, Standard Perpetual Securities Limited and Livermore Holdings Limited act as the Co-Lead Managers, (together, the “Public Offer Underwriters”).

GHW International is an applied chemical intermediates provider in the integrated services market with an established reputation, and a long operating history of over 20 years in the industry.

The Group’s business operation consists of four principal business segments which include (i) polyurethane materials, (ii) animal nutrition chemicals, (iii) fine chemicals and (iv) pharmaceutical products and intermediates. According to Frost & Sullivan, the Group was the largest and the second largest seller in choline chloride in terms of sales revenue in the PRC and in the global market in 2018, accounting for approximately 30.3% and 16.8% of the market share, respectively. It was also the fourth largest seller of polyurethane materials in terms of sales revenue in the PRC in 2018. In addition, the Group ranked 46th globally in terms of revenue in the global chemical sales market in 2018, with a recorded total revenue of approximately RMB2,152.9 million.

With headquarters in the PRC, the Group offers a comprehensive product portfolio with a wide range of applications and a full spectrum of services relating to chemical intermediates supply chain through its extensive global operation and sales network, including research and development on production processes, strong product customisation capabilities, manufacturing of quality chemical products, sourcing of wide-ranging chemicals manufactured by third party manufacturers, efficient and safe logistics services and after-sale services.

The net proceeds from the Global Offering (after deducting underwriting fees and estimated expenses payable in connection with the Global Offering), assuming an Offer Price of HK$0.58 per offer share, being the mid-point of the indicative offer price range and the Over-allotment Option is not exercised, will be approximately HK$96.3 million. The Group currently intends to apply the net proceeds from the Global Offering in the following manner:

– approximately 17.2%, or HK$16.6 million, will be used on the initial establishment of the New Production Plant, which is expected to commence operation in the first quarter of 2022 and will consist of production facilities for the production of trimethylamine and a pilot plant for manufacturing pharmaceutical intermediates, respectively;
– approximately 60.4%, or HK$58.2 million, will be used to construct production facilities at the New Production Plant for manufacturing trimethylamine, which is expected to commence production in the second quarter of 2022;
– approximately 10.2%, or HK$9.8 million, will be used on the construction of a pilot plant at the New Production Plant, which is expected to commence production by the end of 2021 for small batch production of various types of pharmaceutical intermediates;
– approximately 2.2% of HK$2.1 million, will be used on the research and development process of our new pharmaceutical product;
– approximately 0.8%, or HK$0.8 million, will be used on purchasing hardware and software for upgrading our existing financial and accounting management system; and
– approximately 9.2%, or HK$8.8 million, will be used as working capital and other general corporate purposes.

Commenting on the future prospects of the Group, Mr. Yin Yanbin, Chairman and Chief Executive Officer, said, “We are confident that the outlook of fine chemicals and feed additives industries would remain positive and we plan to further penetrate in the markets and increase our market shares by introducing more products to expand our revenue base and to satisfy the needs of our customers. As part of our business strategies, we intend to enrich our product portfolio and expand our supply chain vertically in order to capture new market opportunities. We will also continue to invest in our facilities for environmentally friendly production and implement measures to reduce emissions. Furthermore, we will upgrade and optimise our integrated data operation platform for better service quality and operational efficiency and increase our online sales capability. We are confident of consolidating and enhancing our market position in the supply chain of chemical intermediates after successful listing.”

The Public Offer is expected to commence at 9:00am on Tuesday, 31 December 2019 and is expected to close at 12:00 noon on Friday, 10 January 2020. Allotment results and the final Offer Price are expected to be published on Monday, 20 January 2020. Dealings in Shares on the Main Board are expected to commence at 9:00 am on Tuesday, 21 January 2020 and the stock code of the Company is 09933.

White Application Forms and Prospectuses of the Company can be obtained from the Public Offer Underwriters and designated branches of Bank of China (Hong Kong) Limited. Applicants may also apply online via the HK eIPO White Form Service Provider through the eIPO App or at www.hkeipo.hk. Applicants can also use the Yellow Application Forms or give electronic application instructions to Hong Kong Securities Clearing Company Limited to effect their applications.

GHW International
Financials at-a-Glance

Global Offering: 250,000,000 Shares (Subject to the Over-allotment Option)
Offering Structure
Public Offer: 25,000,000 Shares (Subject to reallocation)
Placing: 225,000,000 Shares (Subject to reallocation and the Over-allotment Option)
Proposed Offer Price Range: HK$0.51 – HK$0.65 per Offer Share
Based on Offer Price of HK$0.51 per Offer Share / Based on Offer Price of HK$0.65 per Office Share
Market Capitalisation(1): HK$510 million / HK$650 million
Announcement of allotment results: 20 January 2020 (Monday)
Expected Listing Date: 21 January 2020 (Tuesday)
Stock Code: 09933
No. of Shares per board lot 4,000

Note:
(1) The number of Shares used for the calculation of the market capitalisation is calculated based on 1,000,000,000 Shares in issue upon completion of the Global Offering, which comprises the existing 1,000,000 Shares in issue as at the date of this prospectus, 749,000,000 Shares to be issued pursuant to the Capitalisation Issue and 250,000,000 Shares to be issued pursuant to the Global Offering and the dividend payables of the Group as at 30 June 2019 has been taken into account but without taking into account of any Shares which may be issued as a result of the exercise of the Over-allotment Option, the exercise of any options which may be granted under the Share Option Scheme or any Shares which may be allotted and issued or repurchased by the Company pursuant to the general mandates for the allotment and issue or repurchase of Shares.

Track Record
The following is a summary of the combined results of the Company for the financial years ended 31 December 2017, 2018 and 2019 and the six months ended 30 June 2018 and 2019:

Year ended 31 December Six months ended 30 June
2017 2018 2019 2018(unaudited) 2019
Revenue (RMB’000) 1,606,829 2,179,049 2,152,946 1,074,927 935,273
Gross Profit (RMB’000) 164,966 317,611 309,562 180,527 121,964
Gross Profit Margin 10.3% 14.6% 14.4% 16.8% 13.0%
Profit for the year / period (RMB’000) 20,757 79,431 74,257 60,811 16,807

Huijing Holdings Company Limited (“Huijing Holdings” or the “Group”), a PRC integrated residential and commercial property developer, with foothold in the Greater Bay Area and strategic focus on Guangdong and Hunan provinces, today announced the details of its proposed listing on the Main Board of The Stock Exchange of Hong Kong Limited (“SEHK”), under the stock code 9968.

Investment Highlights
– The Group is a recognized regional developer, with foothold in the Greater Bay Area. Of the 17 property projects it was acquiring, had completed or was developing as at 30 September 2019, 12 were in the Greater Bay Area and the rest in Heyuan, the Yangtze Mid-Stream Urban Cluster and Yangtze River Delta Urban Cluster. As at 30 September 2019, in terms of site area, approximately 63% of its land reserves (acquired and in the process of acquiring) were in Greater Bay Area
– According to the valuation report prepared by JLL, as at September 30, 2019, the total valuation of Group I to Group IV properties, together with the reference market value for Group V properties and properties in connection with the Group’s urban renewal projects (calculated assuming their development will be in accordance with the proposed zoning changes under the “Three-Old Transformation Scheme”), total to approximately RMB43.3 billion after deduction for double counting
– The Group is involved in urban renewal projects in Dongguan. It has completed or begun 11 urban renewal projects since 2013, and has initiated urban renewal process for three projects. Moreover, it holds parcels of or interests in land for seven potential urban renewal projects, and since July 2019 to December 21, 2019, it has been appointed as the provider of preparatory services for three urban renewal projects
– Able to take advantage of the salient features and strengths of each development site to design developments with unique style that can highlight local attractions or features. At present, the Group’s properties promoting specific industries comprise of “tourism-healthy living” projects and “innovative technology industry” projects
– Able to effectively control land acquisition and construction costs, thereby enhance profitability. Its gross profit margin increased from 30.2% for the year ended 31 December 2016 to 51.9% for the six months ended 30 June 2019, and its adjusted net profit margin in the same period rose from 16.2% to 18.5%

Offering Details
The Group intends to offer a total of 788,100,000 shares (“Offer Shares”) (subject to over-allotment option), of which 90% are for Placing (subject to reallocation and over-allotment option) and the remaining 10% are for the Hong Kong Public Offer (subject to reallocation). The indicative Offer Price range is between HK$1.93 and HK$2.39 per Offer Share. Assuming an Offer Price of HK$2.16 per Offer Share, the mid-point of the indicative Offer Price range, and the over-allotment option is not exercised, the net proceeds from the listing are estimated at approximately HK$1.56 billion.

The Hong Kong Public Offer will commence on 31 December 2019 (Tuesday) at 9:00 a.m. and will end at noon on 9 January 2020 (Thursday). The final Offer Price and allotment results are expected to be announced on 15 January 2020 (Wednesday) and dealing of Huijing Holdings’ shares is expected to commence on the Main Board of SEHK on 16 January 2020 (Thursday). Shares will be traded in board lots of 2,000 shares each. China Galaxy International Securities (Hong Kong) Co., Limited is the Sole Sponsor, Joint Global Coordinator, Joint Bookrunner and Joint Lead Manager of the listing.

Investment Highlights
A recognized regional developer with foothold in the Greater Bay Area and strategic focus on high growth potential cities
Since its establishment in 2004, from setting up base in Dongguan, the Group has established foothold in the Greater Bay Area, enjoying policy benefits as an area highlighted as a strategic focus in the PRC’s development blueprint. The development of the Greater Bay Area has been referred to by the State Council in its “Guidance on Deepening Regional Cooperation in the Pan-Pearl River Delta Region”, and was included in the 13th Five Year Plan in 2016. As at 30 September 2019, in terms of GFA, approximately 37% of the property projects, completed or developing, of the Group were in the Greater Bay Area. In terms of site area, approximately 63% of its land reserves (acquired and in the process of acquiring) were in the Greater Bay Area. Leveraging its success in the Greater Bay Area, the Group have expanded its operations to the Yangtze Mid-Stream Urban Cluster and Yangtze River Delta Urban Cluster in 2016 and 2017 respectively, where it target opportunities in regional cities which has high growth potential, such as Hengyang, Changsha and Hefei. As at 30 September 2019, of the 17 property projects which were being acquired, completed or underdevelopment, 12 were located in the Greater Bay Area, two were located in the Yangtze Mid-Stream City Cluster, two were located in Heyuan and one was located in the Yangtze River Delta Urban Cluster, with site area totaling approximately 2,000,000 sq.m. and planned total GFA of approximately 4,500,000 sq.m.

According to the valuation report prepared by JLL, as at 30 September, 2019, the total market value of the properties under Group I to Group IV, including the project developed by our joint venture, amounted to RMB22.2 billion. The total valuation of Group I to Group IV properties, together with the reference market value for Group V properties and properties in connection with the Group’s urban renewal projects (calculated assuming their development will be in accordance with the proposed zoning changes under the “Three-Old Transformation Scheme”), total to approximately RMB43.3 billion after deduction for double counting.

Furthermore, the Group’s property projects have earned it accolades and recognitions in the industry. It has been recognized by Sohu as “Dongguan’s Most Influential Brand” in 2014, and “Anhui Top-10 City Complex Annual Award” by the Graduate School of Real Estate of Hefei University in 2016.

Experience in urban renewal projects
Huijing has been involved in urban renewal projects in Dongguan, and have completed or begun 11 urban renewal projects since 2013. As at 21 December, 2019, it has initiated the urban renewal process for three projects, and was appointed as the preparatory services provider for three urban renewal projects.

The Group has built working relationships with third party professionals and operators, including design firms, lawyers and accountants, allowing it to more effectively complete for and execute urban renewal developments. Also, it has a dedicated team of 20 employees based in Dongguan which have relevant experience in urban renewal. The Group has conducted its business in Dongguan for more than 15 years, and have since gained an insight into local sentiment and culture, as well as experience in liaising with local authorities. The Group believes such experience would be an advantage for it in handling property developments generally, but would be especially useful in urban renewal projects.

Ability to coordinate various resources for tailoring project-specific development plans for land parcels
With experience in developing various types of property projects, ability to coordinate various resources, and land parcel feasibility studies it conducts for acquisitions it makes, the Group has been able to enhance the realizable value of its land parcels through devising specific development plans. At the same time, it is able to take advantages of the salient features and strengths of each development site to design developments with unique style that can highlight local attractions or features. Currently, the Group’s properties promoting specific industries comprise of “tourism-healthy living” projects and “innovative technology industry” projects.

Regarding “tourism-healthy living” projects, the Huijing Yanhu International Resort, located near Hengyang Wild Goose Lake, is designed as an eco-tourism town, taking advantage of the natural greenery and the waterfront offered by Wild Goose Lake, offering destination to customers seeking cultural experiences and ways to maintain a healthy lifestyle. To illustrate the advantage of the initiative, the eco-tourism town has been selected as a central element to the local government’s urban planning as it has been identified to serve not only as an important tourist attraction in the region, but also as a stimulant to the local economy.

As for “innovative technology industry” projects, the Group’s innovative technologies industry property projects provide communities with sufficient facilities for emerging industries. The Group has entered into a cooperation framework agreement with a local government authority in relation to the development of an AI Town in Dongguan, and is working with Zhejiang University to prepare a feasibility report on the AI town, and provide it with technical support.

Effectively control of land acquisition and construction costs
Capitalizing on its experience in the Greater Bay Area and its proven strategy, the Group has been able to identify and acquire quality and cost-competitive land parcels. Firstly, it adopts a deep-plough strategy where it makes early investments in areas with significant growth potential before the land parcel of that area increases in value. Secondly, its focus on urban renewal projects enable it to acquire land in more urbanized areas at a relatively lower upfront cost, and also with less competition when compared to other methods of acquisition. Thirdly, it adopts a market selection strategy with a uniform land acquisition policy, which has enabled it to control investment risks when making land acquisition decisions. Fourthly, the social amenities (such as hotels, shopping outlets, etc.) that the Group introduces makes it more competitive when acquiring land compared to other competitive bidders who are only able to offer standardized developments, and therefore leads to lower acquisition costs. Further, such social amenities would tend to increase the value of the development as well as the future ASP of the project developed. The Group’s land cost as a percentage of revenue decreased from approximately 13.4% for the year ended 31 December 2016, to 9.0% for the year ended 31 December 2018.

Moreover, the Group has built strong relationship with suppliers over the past years. It has also established a comprehensive cost management system managed by a dedicated team, and actively manage the construction period of its developments so as to achieve targeted completion schedule, in order to effectively control cost of sales. The Group’s cost of sales continued to improve, decreasing from RMB5,614 per sq.m. for the year ended 31 December 2016 to RMB4,945 per sq.m. for the year ended 31 December 2018. According to data of the National Bureau of Statistics of China, the average price of residential properties in Dongguan for the same period increased from RMB13,780 per sq.m. to RMB17,876 per sq.m.

The stringent and successful cost control strategy of the Group have also helped enhance its profitability. Gross profit margin increased from 30.2% in 2016 to 53.3% in 2018. Adjusted net profit margin also surged from 16.2% to 18.5% .

Professional management team with extensive industry experience
The Group has a management team with rich industry experience. Its Chairman and Non-Executive Director Mr. Lun Ruixiang and Executive Director and CEO Mr. Lun Zhao Ming both possess over 15 years of experience in business development. The management team members have an average of more than 10 years of experience in the real estate industry, covering aspects such as real estate investment, planning, construction, financing and sales.

Future development strategies
Huijing Holdings will implement the mission of “Maintain foothold in Greater Bay Area”. With a foothold in Dongguan, it will primarily focus on developments in Guangdong Province and expand into regions such as the Central China Region.

Huijing Holdings will continue to focus on property projects in the Greater Bay Area and Heyuan and continue to make deep-plough investments in high growth potential cities that enjoy government policy support, and continue developments in regions where it already has a foothold, in order to continue building its presence and increasing its market share in these high growth regions. As at 30 September 2019, the Group was holding or developing 11 property projects in the Greater Bay Area with a total site area of 666,652 sq.m., and an aggregate expected GFA of 1.6 million sq.m., and acquired or contracted to acquire land parcels in Dongguan (or interests in such land) with a site area of 634,615 sq.m. and 12 future projects over which development have not yet commenced.

Also, the Group plans to leverage and reinforce its experience in urban renewal developments in the Greater Bay Area, and increase its presence in the field of urban redevelopment through obtaining strategic land parcels in locations where it believes to have high redevelopment potential. As at 30 September 2019, the Group held parcels of or interests in land for seven potential urban renewal projects with a total site area of 379,425 sq.m. The Group will aim to leverage on PRC Government policies to expand its urban renewal operations to other regions in the PRC. Further, since July 2019 until December 21, 2019, the Group was appointed as the preparatory service provider for three urban renewal projects of total site area about 825,000 sq.m.

In addition, the Group will continue to focus on developing integrated tailored developments, and continue to cooperate with entities in emerging industries, ensuring that its business is in line with PRC Government initiatives. For example, the Group has submitted a development proposal for Eastern Automobile City located in Dongguan where the relevant local government authority is set on developing, in Zhangmutou Town, a one-stop destination for automobiles, which would include sales, maintenance, and second-hand trading of cars. The Group believes that its proposal which is in line with local government initiatives would increase its chance of obtaining the relevant land or approvals for development.

Use of proceeds
Assuming the offer price at HK$2.16 per share (being the mid-point of the offer price range) and after deducting the underwriting commissions and other estimated expenses in connection with the global offering, net proceeds from the global offering is estimated at approximately HK$1,564.1 million, which the Group intends to use for the following purposes:

Item / Percentage
– Complete acquisitions of land parcels and/or project companies: 55%
– Repay certain existing interest-bearing bank borrowings and other borrowings: 20%
– Used for development and construction costs: 20%
– Working capital and for other general corporate purposes: 5%

Financial performance
For the year ended 31 December For the six months ended 30 June
(RMB million) 2017 2018 YoY change 2019
Revenue 1,198 2,239 +86.9% 1,316
Gross profit 650 1,193 +83.5% 683
Profit for the year/period 158 401 +153.9% 2441
Net profit margin 13.2% 17.9% +4.7ppts 18.5%

Land reserves
Type / Interest attributable to the Group (RMB hundred million )
Type I: Properties held for sale: 20.16
Type II: Properties held for investment: 9.77
Type III: Properties held under development: 83.68
Type IV: Properties held for future development: 71.52
Type V: Properties to be acquired by the Group in the PRC: 85.25
Total: 270.38

The reference market value for properties in connection with the Group’s urban renewal projects (calculated assuming their development will be in accordance with the proposed zoning changes under the “Three-Old Transformation Scheme”) is RMB132.60 hundred million.

Source: JLL

About Huijing Holdings Company Limited
Huijing Holdings Company Limited (“Huijing Holdings” or the “Group”) is an integrated residential and commercial property developer in the PRC with foothold in the Greater Bay Area and gradually expanding presence to Heyuan, the Yangtze River Delta Urban Cluster and the Yangtze Mid-Stream Urban Cluster. It focuses on urban renewal projects, covering residential property projects, integrated property projects and industry-specific property projects. As at 30 September 2019, the Group held or had agreed to acquire in all 17 property projects in five cities in three provinces. These projects have in aggregate site area of approximately 2,000,000 sq.m. and planned GFA after completion of approximately 4,500,000 sq.m. According to JLL valuation, as at 30 September 2019, the total valuation of Group I to Group IV properties, together with the reference market value for Group V properties and properties in connection with the Group’s urban renewal projects (calculated assuming their development will be in accordance with the proposed zoning changes under the “Three-Old Transformation Scheme”), total to approximately RMB43.3 billion.

Q P Group Holdings Limited (“Q P Group” or the “Group”), the largest producer of paper based tabletop game products and related products and the second largest producer of paper based greeting cards in the PRC , today announced details of its proposed listing on the Main Board of The Stock Exchange of Hong Kong Limited (“SEHK”).

Offering Details
Q P Group intends to offer a total of 133,000,000 Shares, comprising 119,700,000 International Placing Shares (subject to adjustment and the exercise of the Over-allotment Option) and 13,300,000 Hong Kong Offer Shares (subject to adjustment) at an indicative Offer Price range between HK$1.05 and HK$1.45 per Offer Share. Assuming an Offer Price of HK$1.25 per Offer Share (being the mid-point of the indicative Offer Price range) and that the Over-allotment Option is not exercised, net proceeds from the Global Offering (after deducting the underwriting expenses, commissions and related expenses) are estimated to be approximately HK$120.8 million.

The Hong Kong Public Offering will commence on 31 December 2019 (Tuesday) and will end at 12:00 noon on 9 January 2020 (Thursday). The final Offer Price and results of allocation will be announced on 15 January 2020 (Wednesday). Dealing of Q P Group’s Shares on the Main Board of SEHK is expected to commence on 16 January 2020 (Thursday) under the stock code 1412. Shares will be traded in board lots of 2,000 Shares each.

Guotai Junan Capital Limited is the Sole Sponsor of the Global Offering. Guotai Junan Securities (Hong Kong) Limited is the Sole Global Coordinator and Sole Bookrunner. Guotai Junan Securities (Hong Kong) Limited, First Shanghai Securities Limited and Crosby Securities Limited are the Joint Lead Managers.

Investment Highlights
Long-established Paper Product Manufacturing and Printing Services Provider
Q P Group has been accumulated over 30 years of experience in paper products manufacturing and printing. The Group offers a wide spectrum of products, including tabletop games, greeting cards, educational items, premium packaging to gifts and others, to meet different needs of its broad customer base. Apart from manufacturing products based on their specifications, the Group also provides OEM customers with value-adding and customised product engineering services which help them convert ideas into commercialised products. Depending on the design of the products, such value-adding services may cover paper mechanics and product construction.

In addition, the Group is committed to research and development to enhance its production efficiency. It tailor-made an integrated automated card game production line that covers the entire production process, converting printed sheets into packaged card games that are ready for delivery. It has also developed and patented a card game automatic cartoning machine, which enables full automation of the packaging process of card games.

Stable and Long-term Business Relationships with its Major Customers
Attributable to the consistency of its product quality, production capabilities and engineering expertise, Q P Group has cultivated a long-term business relationship with its major customers. Major customers include Hallmark, an international greeting cards publisher, Mattel, a global learning development and play company, and a global play and entertainment company, ranging from eight to 18 years.

Since 2002, the Group has built a stable business relationship with Hallmark, its largest customer. Q P Group is recognised by Hallmark, and has been awarded with “Lean Manufacturing Supplier” in 2013 and 2014, “Certified Quality Supplier” in 2015 and “Supplier of the Year 2016” and “Supplier of the Year 2018”.

Solid Manufacturing and Printing Experience with Comprehensive Production Capability
Q P Group operates two key production sites equipped with a comprehensive range of machinery in Dongguan and Heshan, Guangdong in the PRC. To cope with the market needs for high-variety-low-volume orders and capture the growth in Internet retailing, it has established a digital production hub with digital printing and processing machines to handle orders of small quantities at a short lead time while enjoying higher gross profit margin from low volume orders. It also possesses automated production lines tailor-made for some of its major OEM customers to cater for their particular products.

Committed to Technological Development and Adoption of Management Tools
Q P Group is committed to technological development and has been adopting an online digitalised business model in order to keep up with constantly changing technological development, expand its market share and broaden the customer base. The Group has developed five major self-operated websites, allowing web-based order and production processing with quick turnaround time generally ranging from two to seven days from payment to delivery. The Group also adopts different management tools such as lean manufacturing and quick response manufacturing to enhance efficiency and productivity and now is the registered owner of six invention patents and two utility model patents in the PRC.

Comprehensive Quality Management System to Ensure High Product Quality and Manufacturing and Printing Services
Q P Group’s quality assurance system focuses on preventive plans and actions that manage quality throughout the production operations. In respect of quality engineering, it formulates testing and inspection plans for product safety testing on raw materials and products which are conducted by DPI Laboratory (DG) the Group’s wholly-owned subsidiary. DPI Laboratory (DG) is accredited by different international professional bodies and qualified to conduct tests in accordance with international standards, such as the U.S. and countries in the European Union standards and directives for toys, packaging and general goods. Major customers generally entrust the Group to conduct final quality control before delivery of finished products to the designated warehouses or departure ports.

Experienced and Dedicated Management Team
Q P Group’s management team brings years of paper product manufacturing and printing industry knowledge and experience to the Group. Both Mr. Cheng Wan Wai and Mr. Yeung Keng Wu Kenneth, the Group founders, each has more than 30 years of experience in the printing industry. They have together led the Group to become a long-established paper product manufacturing and printing services provider.

Future Strategies
Enhancing Production Capacity and Operational Flexibility
Q P Group will expand its operational capability and presence outside the PRC by exploring business opportunities with manufacturers and production facilities owners in Southeast Asia which are currently not affected by the trade war between the U.S. and the PRC. It intends to relocate the end-to-end production of the majority of principal products, including but not limited to those which are subject or maybe subject to U.S. tariff from the PRC to Vietnam through subcontracting arrangement by the end of 2020.

Furthermore, the Group plans to set up its own production site outside the PRC and acquire a factory building in Vietnam by the end of 2021. The new factory building in Vietnam equipped with complementary machineries and workers with specific skills and knowledge to perform end-to-end production of the majority of its principal products will allow the Group to convert more of its outsourcing to in-house production to further strengthen its position as a manufacturer. It will also provide cost-saving opportunities, greater operational flexibility and better control over quality and delivery of products relative to outsourcing in the long term.

Optimise Product Mix and Production Specialisation
To ensure sufficient production capacity to optimise the product mix to produce products of higher gross profit margins and improve the profitability, the Group finds it vital to reallocate production capacity to Heshan. The Group started reallocating the production capacity between Dongguan Factory and Heshan Factory by relocating some of the production facilities for tabletop games and educational items from Dongguan Factory to Heshan Factory in October 2018. It expects to substantially complete the relocation by December 2020. The Group will construct an additional factory building with a planned GFA of 23,444 sq.m. in the Heshan Factory and such construction is expected to be completed at the end of 2021.

In order to optimise the product mix to produce products of higher gross profit margins, including tabletop games and educational items, the Group intends to expand its OEM customer base for such products by increasing its marketing effort in attending international trade shows, exhibitions, and conventions in more countries to look for new opportunities in new geographical locations and expand the geographical coverage. The Group will also continue to broaden its customer base and diversify our revenue streams through promoting its websites. It plans to continue to use an extensive range of digital marketing strategies as well as traditional marketing strategies to promote its brands. The Group is in the process of including more language options on its websites and increasing product offerings so as to broaden target customer base and further meet the needs of potential customers.

To Upgrade IT Infrastructure
With the increasing popularity of Internet retailing, the Group will continue to develop and enhance its own websites to reach out to a wider customer base without geographical limitation, generate greater sales and seek new business opportunities with corporate customers with its technological capability. In view of the growing trend of automation and data exchange in manufacturing technologies, the Group will strengthen its competitiveness through the introduction of Industry 4.0, which allows the creation of a “smart factory”. It plans to upgrade its IT infrastructure by establishing a cloud system, upgrading the existing IT infrastructure in Hong Kong and the PRC, and setting up data warehouse in Dongguan to facilitate the collection of big data from production processes.

Use of Proceeds
Assuming an Offer Price of HK$1.25 per Offer Share (being the mid-point of the indicative Offer Price range), the net proceeds from the Global Offering (after deducting the underwriting expenses, commissions and relate expenses) are estimated to be approximately HK$120.8 million. The Group intends to allocate the net proceeds for the following purposes:

Purpose / Percentage
– Enhancing production capacity and operation flexibility: 52.5%
– Reallocating production capacity to Heshan and enhancing operational efficiency as well as optimising product mix and production specialisation: 25.0%
– Leveraging technological capabilities and upgrading IT infrastructure: 11.7%
– Working capital and other general corporate purposes: 10.8%

Financial Performance
For the year ended 31 December For the six months ended 30 June
2016 2017 2018 2018 2019
HK$’000 HK$’000 HK$’000 HK$’000(unaudited) HK$’000
Revenue 886,343 1,079,630 1,162,979 509,106 564,858
Gross Profit 271,021 275,663 282,067 109,449 160,740
Adjusted net profit for the year / period 89,835 78,889 71,544 9,146 24,343

About Q P Group Holdings Limited
Established in Hong Kong in 1985, Q P Group ranked first in the paper-based tabletop game products and related products manufacturing market in the PRC, and second in the paper-based greeting cards manufacturing market in the PRC, both in terms of export value in 2018. It has established stable and long-term business relationships with major customers in the United States and countries in Europe, including international brand names such as Hallmark and Mattel. Its products are categorised into five principal product categories include (i) tabletop games, (ii) greeting cards, (iii) educational items, (iv) premium packaging, and (v) other products, which are sold on an OEM basis or through self-operated websites. It operates two key production sites in Dongguan and Heshan in PRC.

The value of Hong Kong exports is expected to shrink by 2% next year, according to the latest forecast by the Hong Kong Trade Development Council (HKTDC). Meanwhile, the HKTDC Export Index for the final quarter of 2019 hit a record low of 18.8, down 8.6 points from the previous quarter, indicating that Hong Kong exports are expected to remain sluggish in the coming months.

HKTDC Director of Research Nicholas Kwan attributed the decline of the city’s exports to a slowdown in the global economy compounded by the impact of the Sino-US trade dispute. “The proliferation of protectionism into the broader economic and geopolitical arenas suggests a growing risk of a deep and protracted global slowdown,” Mr Kwan said.

Speaking at a press conference to announce the forecast, Mr Kwan said Hong Kong exporters are facing unprecedented pressure amid the current uncertainties. “Our survey found that 65% of local exporters anticipated a drop in their total sales in 2020. The softening of global demand (37.3%) has overtaken Sino-US trade tensions (31.5%) to become their primary concern,” he said.

Export Index hits record low

The HKTDC Export Index monitors the current export performance of Hong Kong traders and gauges their near-term prospects. HKTDC Assistant Principal Economist (Greater China) Alice Tsang said the readings for all major industries stayed well below the watershed score of 50, indicating that local exporters are increasingly pessimistic about the city’s export outlook. This was particularly marked in the electronics and timepiece sectors where the indices fell to 18.2 and 15.5 respectively – the lowest figures ever recorded.

Regarding the outlook for specific markets, Japan was the most promising with the index standing at 47.4, followed by Mainland China and the United States (US), tied at 40.1. The European Union ranked last, falling 4.5 points to 36.8, the lowest figure for this market since the global financial crisis in 2008-09.

Buyers bargain harder

“The trade conflict between the mainland and the US has adversely affected more than half of the exporters surveyed (56.5%),” Ms Tsang explained, “Most of them have suffered from fewer orders (70.8%), while a growing number of exporters (58.1%, up from 44.1% in the last quarter) experienced tougher price bargaining with buyers.”

Ms Tsang added that more than one-third of respondents (37.9%) have explored business opportunities in alternative markets to reduce their reliance on the US, with half of them shifting their focus to the Asian market, and nearly one-fifth specifying an expansion into countries in the Association of Southeast Asian Nations (ASEAN) bloc. Other tactics include lowering unit prices (17.9%) or the minimum quantity per order (15.4%), diversifying production or sourcing bases (14.4%), increasing the added value of products (12.8%) or, more pessimistically, downsizing the company (17.9%).

Eye on East Africa

Against the backdrop of the Sino-US trade conflict, manufacturers are seeking alternative manufacturing bases, with East Africa emerging as an option. HKTDC Assistant Principal Economist (ASEAN and Emerging Markets) Wenda Ma said enhanced regional integration, continued urbanisation, improved infrastructure and technology development are all supporting the region’s industrialisation and structural transformation.

Ms Ma said the rise of East Africa is being led by Ethiopia, with the country’s strong growth being driven mainly by the development of its light manufacturing industry, as well as a growing consumer market and continued public investments. “In addition to reducing red tape for businesses, Ethiopia has, with assistance from Mainland China, invested heavily in industrial parks and road, rail and air infrastructure to facilitate its exports. In particular, the Addis Ababa-Djibouti Railway has greatly increased the landlocked country’s attractiveness as a manufacturing hub.”

Being the largest and most advanced economy in the region, Kenya is widely recognised by multinational companies as a launch pad into the East African market. “With a growing young population, a dynamic private sector and improved infrastructure, Kenya offers a wealth of trade and investment opportunities across various sectors including infrastructure development, manufacturing, tourism, as well as information and communications technology (ICT). It is also a leader in financial innovation in Africa,” she added.

Mainland elderly market shines

Many Hong Kong companies are striving to develop new markets and diversify their business to help cushion the impact of lingering tensions between the world’s two largest economies. HKTDC Economist Doris Fung said that an ageing population in the mainland coupled with a more independent lifestyle has stimulated the demand for products and services related to the senior citizen market, bringing new opportunities for Hong Kong traders.

“Chinese society is ageing fast and the ‘silver hair’ market is expanding rapidly,” she said, “The middle-class senior group on average spends around 90% of their personal pension or monthly income, which equates to Rmb 5,090 per person.”

“Apart from garments and accessories, health supplement tablets such as calcium, vitamins and fish oil, as well as smart electronic products are also popular among the elderly, while children will buy functional goods such as living aids, rehabilitation products and health monitoring equipment for their parents,” Ms Fung added: “Many elderly people on the mainland are also active travellers, spending thousands of yuan on each trip.”

References
– HKTDC Research website: http://research.hktdc.com/
– Hong Kong Export Index 4Q19: Lingering China-US Trade Tensions Push Export Sentiment to Record-Low: https://bit.ly/2M0OgfD
– Hong Kong Export Outlook for 2020: Strong downside risks as protectionism proliferates and global economy slows: https://bit.ly/36DlwRL
– Djibouti: an Emerging East African Trading Hub: https://bit.ly/2LwKryv
– Guide to Manufacturing in East Africa: https://bit.ly/36xJxtw
– China’s Elderly Market: Survey Summary and Recommendations https://bit.ly/36CgOnj
– Podcast: https://bit.ly/2PRDAkw
– Photo download: https://bit.ly/2rOzAcI

About HKTDC

The Hong Kong Trade Development Council (HKTDC) is a statutory body established in 1966 to promote, assist and develop Hong Kong’s trade. With 50 offices globally, including 13 in Mainland China, the HKTDC promotes Hong Kong as a two-way global investment and business hub. The HKTDC organises international exhibitions, conferences and business missions to create business opportunities for companies, particularly small and medium-sized enterprises (SMEs), in the mainland and international markets. The HKTDC also provides up-to-date market insights and product information via trade publications, research reports and digital news channels. For more information, please visit: www.hktdc.com/aboutus. Follow us on Twitter @hktdc and LinkedIn.

Contact:

Beatrice Lam, Tel: +852 2584 4049, Email: beatrice.hy.lam@hktdc.org