Public company info - Hontex International Holdings Co. Ltd. , 00946.HK
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Hontex International Holdings Co. Ltd., 00946.HK - Company Profile
Chairman Shao Ten-Po
Share Issued (share) 1,506,000,000
Par Currency Hong Kong Dollar
Par Value 0.1
Industry Textile & Apparels
Corporate Profile Business Summary: The company is a vertically integrated manufacturer of chemical fibre knitted fabrics, especially with focus on functional fabrics, for sportswear clothing in the province of Fujian in the PRC. The company develop and manufacture fabrics for sports and leisure apparel in the PRC and produce garments on an OEM basis for some overseas premium apparel brand owners such as Decathlon, Kappa and Mizuno and some PRC apparel brand owners such as Li Ning and Anta. The Group is also engaged in the design, development and marketing of fashion and leisure apparel and accessory products sold under the MXN brand. Performance for the year: Business Review: We collaborate closely with apparel brand owners to design fabrics that meet customised order particulars. Our finished fabrics comprise more than 2,880 designs and specifications. Our fabrics are used in a broad range of garments, including men’s, women’s and children’s clothing, sportswear, golf shirt, T-shirt, swimwear and inner-wear. We have established business relationships with owners of leading brands. For the fabrics manufacturing segment, Fuqing Hong Liong produces fabrics which serves as the raw materials for the production of all the five brand owners, namely Decathlon, Anta, Kappa, Mizuno and Li Ning. For the causal and sportswear OEM segment, Fuqing Ecotex also produced the sportswear and leisure apparel for Anta, Mizuno and Li Ning. As advised by our Directors, our Group has maintained relationships with the apparel brand owners for more than ten years even though we have not entered into long term supply contracts with these customers. Our principal manufacturing facility is a modern, integrated knitting, dyeing and finishing facility in Fuqing, China, with a total gross floor area of approximately 31,756.75 square meters. We offer weft and warp knitting along with dyeing services. Our fabric production cycle can be divided into three general procedures: knitting, dyeing and finishing. For the casual and sportswear OEM segment, our apparel manufacturing process is divided into five major stages: (i) raw materials inspection and testing; (ii) cutting and trimming; (iii) sewing and assembly; (iv) ironing; and (v) packaging. The approximate annual output as a percentage of the annualised production in 2008 exceeded 100%. As confirmed by the Directors, it is because the production of 320,200 pieces of apparel products commenced in 2007 but was not completed until 2008, when the finished apparel products were transported to the warehouse and recorded as inventory. Apart from the above, we are also engaged in the design, development, wholesales and marketing of fashion and leisure apparel and accessory products, sold under the MXN brand, which was acquired by us in the PRC in May 2008. In wholesale business, we employ a franchise distribution model which is commonly used by apparel brand owners in the PRC. Neither the franchise distributors nor the franchise stores were owned or operated by our Group. After our acquisition of Shishi Maigen in 2008, we had 420 franchise stores as at 31 December 2008, and 665 franchise stores as at the Latest Practicable Date. As at 31 December 2008 and the Latest Practicable Date, we had 11 and 22 franchise distributors, who in turn had 171 and 379 franchise stores, respectively. As confirmed by the Directors, the Group did not own any franchise stores during the Track Record Period and as at the Latest Practicable Date. Collectively, the MXN retail network covers 22 provinces, as well as more than 33 county-level cities in the PRC. Prospects: Expand and upgrade manufacturing facilities In order to enhance our competitiveness and profitability, we seek to apply approximately HK$132.2 million of the proceeds from the Global Offering, which represents approximately 13.2% of the net proceeds, to expand our manufacturing facilities, selectively upgrade production equipment and acquire environmental-friendly and energy-saving production equipment. Existing production equipment such as boiler equipment and thermal equipment will be upgraded. Environmental-friendly and energysaving production equipment such as renovated dyeing equipment will be acquired in order to save energy, reduce production cost and increase production capacity for high-end products. We also seek to identify new production equipment designed to enhance our production efficiency and capacity, shorten turnaround time and reduce labour cost and energy consumption, particularly the equipment used for knitting, dyeing and finishing in our fabric manufacturing business. These planned upgrades and acquisitions lay the foundation for improving both productivity and profitability in the future. It is expected that the proceeds will be invested in 2010 and the production capacity will increase by approximately 50% in the second half of 2010. Develop new high-tech fabric specifications We are currently planning to introduce additional value-added fabrics such as environment-friendly fabrics and functional fabrics to secure our competitive strength in research and development of hightech fabrics in the industry. In order to achieve such target, we seek to increase our resources on innovation, research and development of new high-tech fabric specifications, and to annually file at least three patent applications for registering an invention or a new process. Increasing our resources in research and development includes an expansion of our research and development department, acquisition of new research and development equipment, hiring experts and scholars in this profession, provision of training to existing research and development employees to enhance their professional standards and formulation of relevant approaches to encourage innovation. These initiatives will be implemented in order to strengthen the innovation and development capability of own research and development department, which in turn will help us strive to become one of the world’s leading professional manufacturers in functional fabrics and environment-friendly fabrics. We expect to fund these initiatives from our internal resources. Continue to develop and enhance our MXN brand name Through the implementation of a number of innovative and diversified marketing plans targeted towards our major consumer group who are between the ages of 18 and 35, we intend to apply approximately HK$259.7 million of the proceeds from the Global Offering, which represents approximately 26.0% of the net proceeds, to continue to develop and enhance our MXN brand and brand recognition as a leading and innovative retailer of trendy and fashionable casual wear and accessory products. The amount is significantly higher than the aggregated expenses on the same item during the Track Record Period. As advised by the Directors, before the acquisition by the Group in 2008, Shishi Maigen did not have a very well-organised marketing strategy. However, after the acquisition, we realised the importance of the popularity of a brand, which is also the core factor which leads to the success of running a brand business. So, our Directors advised that the number of franchise stores of MXN is expected to continue to expand, which will lead to an increase in the advertising and marketing costs as a result of the additional number of the franchise stores involved. We intend to further promote the brand by engaging in various types of advertisement on mass media, including television commercials, radio, magazine advertising, outdoor displays, and multimedia advertisement on public transport, which will incur a substantial amount of promotion costs. We first set up our MXN franchises in second-tier cities. In order to gain more brand awareness and exposure in first-tier cities at an accelerating pace, one of our initiatives is to appoint entertainment celebrities, who are popular in the trendy and youth mass market and have a fresh image that closely conveys the culture and lifestyle of our MXN brand, to be our image and brand spokespersons. In 2009, we appointed Peter Ho (何潤東), who is a popular Asian entertainment celebrity, to be our image and brand spokesperson. Moreover, we intend to hire a female celebrity as a spokesperson for the brand. Together with the current spokesperson, we intend to organise different marketing events to promote the brand, which will also significantly increase our cost of the advertising programme. As advised by our Directors, we intend to apply approximately HK$259.7 million of the net proceeds from the Global Offering in the three years after the listing of the Company for advertising and marketing. It is estimated that the advertising and marketing cost will be utilised as approximately HK$38.9 million, HK$90.9 million and HK$129.9 million for each year of 2010 to 2012 respectively. We will use our internal resources to carry out the advertising and marketing activities in the subsequent years after that three years period of time as mentioned. Expand and optimise our distribution network We will continue to expand and optimise the distribution network of our MXN branded products. In 2008, our sales channels had mainly been distributionship and franchising. We intend to apply approximately HK$352.6 million of the proceeds from the Global Offering, which represents approximately 35.3% of the net proceeds, to gradually speed up the establishing of 20 self-owned and operated flagship stores in 20 prime locations in major cities or provinces of the PRC in the coming years of 2010 and 2011. The flagship stores are planned to be located in East China (such as Shanghai and Fujian), South China (such as Hubei, Guangdong and Hong Kong), Southwest China (such as Sichuan and Yunnan), Northeast China (such as Heilongjiang Liaoning), and North China (such as Beijing and Tianjin). We believe that the flagship stores are a good means for promoting the image of the brand and style of the shop for attracting potential investment. This is another initiative of ours to outreach our MXN brand to increase brand recognition and reputation. We have no self-owned and operated flagship stores as the Latest Practicable Date. Implement our multi-brand strategy We confirm that we are currently in negotiation for the acquisition of another leisure apparel brand. Substantive negotiations are expected to be entered in 2010, and that particular brand will join our Group in the second half of the same year if the negotiation is successful. As confirmed by our Directors, the negotiation between the potential seller of the leisure apparel brand in the PRC has undergone for about one year. Both the potential seller and us were having a preliminary intention but there are no concrete terms or agreements at this stage. Thus, the acquisition may or may not be successful. We intend to apply approximately HK$132.2 million of the proceeds from the Global Offering, which represents approximately 13.2% of the net proceeds, for the acquisition of the abovementioned leisure apparel brand. This multi-brand strategy not only allows us to offer a wider range of product offerings but also allows us to distinguish and divide our target markets with a number of unique brands that cater and attract different customer groups. Therefore, we will continue to develop and promote each of our brands as a unique brand targeting different consumer groups. Continue to reinforce our one-stop solutions Through providing our customers with a variety of value-added services and solutions, we seek to strengthen our cooperative relationships with our customers and secure higher-margin business. Different from many Asian apparel companies that are mainly engaged in either fabric manufacturing, OEM manufacturing or distribution, we vertically integrate the apparel industry chain. We integrate fabric manufacturing, apparel manufacturing and branded distribution and enjoy the advantages of such onestop solutions. From manufacturing of fabrics to trading of apparel, this business integration enables us to have more control and rights over different procedures throughout the apparel industry chain. To reinforce our one-stop solutions and enhance our corporate image, we intend to apply approximately HK$52.8 million of the proceeds from the Global Offering, which represents approximately 5.3% of the net proceeds, to establish a more centralised administrative corporate headquarters, where the internal resources of our Group, product design, logistics management, office and exhibitions are integrated. In addition, it will be where general assemblies for suppliers, distributors and customers who place their orders are held. As advised by our Directors, the Board has not identified any target building and is not under any negotiation for the acquisition. Our Directors confirmed that at this stage, we only have a preliminary plan to establish the corporate headquarters in Fuqing. Continue to improve our management of production Although we believe we currently enjoy flexibility in adjusting our production schedules to meet production needs through outsourcing production to sub-contractors and contract manufacturers, we will continue to expand and improve our manufacturing facilities in order to meet the expected growth of our business and the growing demand for our fabrics, sportswear products and leisure apparel and accessory products. In particular, we intend to apply approximately HK$44.1 million of the proceeds from the Global Offering, which represents approximately 4.4% of the net proceeds, to purchase an ERP system for increasing operational efficiency by enhancing information management, production management, logistics management and operational control through the installation of the ERP system. We aim to do this in order to strengthen our control over operations and cost and to rapidly respond to the changing market trends and preferences. We believe that the growth in our business, operations and production volume will increase our efficiency in terms of product line utilisation rates while allowing us to reduce our raw material costs. We will also continue to refine and improve our manufacturing facilities in order to improve production rates and reduce stoppages. Strengthen cooperative relationships with our MXN franchisees We intend to apply approximately HK$26.4 million of the proceeds from the Global Offering, which represents approximately 2.6% of the net proceeds, to develop our new corporate headquarters for our MXN distribution business. The setting up of the new MXN corporate headquarters can consolidate the design, logistics, operations and convention functions such as annual sales fairs into a single place, and in which, we can carry out conventions for potential investors, merchandisers, suppliers and franchise distributors. As advised by our Directors, the Board has not identified any target building and is not under any negotiation for the acquisition. Our Directors confirmed that at this stage, we only have a preliminary plan to establish the new MXN corporate headquarters in Xiamen.

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