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.
