UNIQLO And Semir Supplier Ya Dong Group Rushing To Hong Kong Stock Exchange: Close To 900 Million

In March 23rd, Ya Dong Group Holdings Limited (referred to as "Ya Dong group") once again submitted a listing application to the main board of the HKEx, and its financial capital was its sponsor.

Ya Dong group is mainly engaged in designing, processing and selling textile fabrics, and its production facilities are located in Changzhou, Jiangsu, China. The prospectus said that the company has established good business relations with international or domestic apparel brand operators, such as UNIQLO and Semir. It is reported that since 2014, the company has established long-term business relationship with UNIQLO and has been named one of its most trusted business partners by UNIQLO.

According to the Ipsos report, the market of China's textile dyeing and finishing industry is scattered. In 2018, the market share of China's five major textile dyeing and finishing service providers was only about 6.3% of China's total market value, while most of the rest of the market were small and medium service providers. The company ranked third in textile dyeing and finishing service providers in Jiangsu in 2018. In 2018, it recorded an income of about 862 million yuan (the same below), accounting for about 0.2% of China's market capitalization in 2018, accounting for about 1.6% of Jiangsu's total market capitalization.

In the 2017-2019 fiscal year, the revenue of the company was about 660 million yuan, 860 million yuan and 870 million yuan respectively, with a compound annual growth rate of about 14.4%, while its net profit amounted to 30 million 600 thousand yuan, 49 million 100 thousand yuan and 52 million 700 thousand yuan respectively, with a compound annual growth rate of about 31.3%.

Gross profit margins were about 12.3%, 13.1% and 14.9% respectively during the performance period. Among them, plain cloth products are the main products, gross profit accounts for about 68%, 84.7% and 75.1% of gross profit respectively during the past performance, and the gross profit of corduroy products accounts for 26.1%, 10.9% and 21% of gross profit respectively. The increase in gross margin from 2017 to 2018 was mainly due to the manufacture of textile fabrics from Vietnam, which had low cost of procurement units in 2018.

According to Chi Chi consulting data, the average gross profit margin of the printing and dyeing industry was 20% and 15.6% respectively from 2017 to 2018, while the overall gross profit margin of the company was only about 12.3% and 13.1% during the same period, lower than the industry level.

In addition, the asset liability ratio of the company was relatively high, which was 65.3%, 52.5% and 77.8% respectively during the previous period. In December 31, 2019, the asset liability ratio increased to about 77.8%, mainly attributable to the total interest reduction to about 95 million 100 thousand yuan in December 31, 2019, mainly due to a dividend of about 114 million yuan in 2019, partially offset by a net profit of 52 million 700 thousand yuan in 2019.

During the past performance period, material costs accounted for 470 million yuan, 611 million yuan and 600 million yuan respectively, accounting for about 80.4%, 81.7% and 81% of the total cost of sales respectively. The company's main materials include plain and corduroy grey fabrics, and textile dyes and additives, such as coloring agents and dyeing auxiliaries. The price of the material used in the production depends largely on the market role, not the company's control.

In addition, most of the raw materials used in the production process come from Chinese suppliers. During the past record period, the total procurement volume was about 64.2%, 66% and 62.1% from the five largest suppliers. However, the company did not enter into any long-term purchase contract with suppliers for any period exceeding one year.

According to the prospectus, Ya Dong group will also be affected by the epidemic because its production facilities are located in Changzhou, Jiangsu, China - one of the areas affected by the new coronavirus epidemic in China. Based on its available information, the company's output in the two months ended February 29, 2020 was about 37.2% less than that in the same period in 2019.

Its director said that the reduction in production was due to mandatory long-term operational moratorium and insufficient labour force to resume full operation (due to China's travel restrictions imposed on the control of the new coronavirus epidemic). It is expected that there will be a decline in financial performance for the year ended December 31, 2020.