On November 18, Yadong Group was officially listed on the Hong Kong Stock Exchange with the stock code 01795.HK. On the first day of listing, the opening price of Yadong Group was HK$0.76 per share, down nearly 10% from the pricing of HK$0.84 per share. Yadong Group mainly sells textile fabric products to clothing manufacturers and trading companies, such as Uniqlo and Semir.
In April this year, Yadong Group Holdings Co., Ltd. (hereinafter referred to as “Yadong Group”) submitted an IPO prospectus to the Hong Kong Stock Exchange. Yadong Group plans to use the proceeds for the following purposes: expanding production capacity and product range by upgrading and improving existing production lines and technical capabilities, acquiring a company with an existing production plant in Jiangsu Province, and for general corporate purposes and working capital.
Yadong Group plans to replace the existing machines and equipment in the factory in Changzhou, Jiangsu with new machines and equipment and upgrade the existing production lines and technical capabilities. It is expected that the annual output will increase by no less than approximately 100 million meters of textile fabrics, and is expected to be able to increase production by 2021. Technology upgrades and improvements will be completed before the second quarter of 2021. In addition, the company plans to acquire a company in Jiangsu with an annual output of 100-150 million meters of textile fabric production capacity. The acquisition will be completed before the end of 2021. By then, the company’s total textile fabric production will increase Production will increase by approximately 200 million to 250 million meters.
In addition, in order to reduce operating costs, Yadong Group plans to expand China’s overseas production facilities to Southeast Asia to improve its competitiveness, especially for overseas market customers and those with designated products in Southeast Asia. Manufacturer’s direct brand operator.
According to Ipsos statistics, from 2014 to 2017, China’s total clothing retail value increased from 1,256.3 billion yuan to 1,455.7 billion yuan.
Due to the slowdown in China’s economic growth in 2018, the total retail value of clothing was 1,370.7 billion yuan. However, as the economic transformation deepens, it will continue to grow in the future, and is expected to reach 1.913 billion yuan in 2024, with a compound annual growth rate of 6.4%.
Branded fabric supplier.
Third in Jiangsu, with annual revenue of nearly 900 million
Yadong Group From 2016 to the first half of 2019, Yadong Group achieved revenue respectively were 387 million yuan, 662 million yuan, 861 million yuan and 405 million yuan, with a compound annual growth rate of 49.1%. Net profit increased from 3 million yuan in 2016 to 49.1 million yuan in 2018, with a compound annual growth rate of 305.4%.
Source: Prospectus
According to Ipsos statistics, Yadong Group ranks third in Jiangsu Province in terms of revenue.
In terms of customers, from 2016 to 2018 and as of June 30, 2019, customers who purchased the company’s textile fabric products mainly included clothing manufacturers and trading companies.
In 2018, Yadong Group cooperated with Uniqlo’s purchasing agent and achieved sales of 123.4 million yuan, accounting for 14.5% of the revenue in the same period, making it the largest customer. The revenue share from the largest customers was approximately 14.0%, 11.8%, 14.5% and 11.0% respectively.
In terms of suppliers, the company purchases raw materials from local suppliers in China. During the Track Record Period, purchases from the largest supplier accounted for approximately 26.5%, 32.1%, 23.6% and 21.5% of the total purchase volume respectively, while purchases from the five largest suppliers accounted for approximately 58.9%, 64.2% of the total purchase volume respectively. %, 66.0% and 65.7%.
From 2016 to the first half of 2019, the proportion of sales revenue of Yadong Group’s textile fabric products increased from 85% to 95%. The sales fabrics were mainly plain weave, followed by corduroy; The proportion of processing services continues to shrink.
Gross profit margin is only 13.6%
Although Yadong Group’s revenue has grown steadily in recent years, the company’s overall gross profit margin is still at a low level.
From 2016 to the first half of 2019, Yadong Group’s gross profit margin increased from 12.2% to 13.6%. prospectusThe instructions show that the company’s gross profit margin increased slightly, mainly due to the fact that from the first half of 2018 to the first half of 2019, the average unit price of plain fabric products increased slightly by 3.4% due to market conditions; at the same time, since 2018, Yadong Group began to purchase Vietnamese textiles Fabric, unit cost is lower.
But at the same time, the price reduction measures taken by the company to maintain product competitiveness of corduroy products reduced the gross profit margin of this product by nearly six percentage points, offsetting the increase in plain weave fabrics.
On the other hand, UNIQLO’s efficient control of product costs means that it has a strong demand for low prices for midstream and upstream raw materials, maintaining price advantages while ensuring quality. It may become one of the core competitiveness of supplier Yadong Group.
According to Zhiyan Consulting data, from 2017 to 2018, the average gross profit margin of the printing and dyeing industry was 20% and 15.6% respectively. Affected by the increase in raw material prices, the gross profit margin has declined, but It is still 3 to 8 percentage points higher than the East Asia Group.
It is worth noting that textile dyeing is a highly polluting industry. Textile printing and dyeing wastewater has the characteristics of large water volume, high content of organic pollutants, and high alkalinity. It is recognized as a difficult-to-treat industrial wastewater. one. The prospectus disclosed that in 2016, Yadong Group’s production and operations were significantly disrupted for about half a year due to technological upgrades in its sewage treatment system.
For Yadong Group, if it cannot improve production efficiency and scientific research capabilities to effectively control production costs, gross profit margin will not be substantially improved.
Yadong Group stated that the company has been committed to developing printing and dyeing fabrics that keep up with trends and meet customer needs. Yadong Group’s sales and design team consists of 37 members and is responsible for design activities Including the research and development of new fabric products. However, Yadong Group did not disclose the specific R&D investment status in the prospectus.
In addition, the company also admitted in the prospectus that similar to the problems currently faced by most labor-intensive industries, Yadong Group is also facing the problem of rising labor costs. Well-known foreign brands such as Adidas and ZARA that previously set up factories in China have moved their factories to areas with lower labor costs such as Southeast Asia and Africa.
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