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Public company info - D&G Technology Holding Co. Ltd. , 01301.HK

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D&G Technology Holding Co. Ltd., 01301.HK - Company Profile
Chairman Choi Hung Nang
Share Issued (share) 622,000,000
Par Currency Hong Kong Dollar
Par Value 0.01
Industry Machinery & Equipment
Corporate Profile Business Summary: The Group is principally engaged in manufacturing, distribution, research and development and operating lease of asphalt mixing machinery and provision of machinery finance services. Performance for the year: During the year ended 31 December 2019, the Group recorded a total revenue of RMB446,426,000 (2018: RMB328,155,000), representing an increase of approximately 36.0% as compared to last year. The gross profit of the Group decreased from RMB98,124,000 for the year ended 31 December 2018 to RMB87,729,000 for the year ended 31 December 2019, representing a decrease of approximately 10.6%. The overall gross profit margin decreased by 10.2 percentage points from 29.9% to 19.7%. The Group recorded a net loss attributable to owners of the Company of RMB35,076,000 compared with a net loss of RMB48,412,000 last year. Business Review: The Group offered a full range of asphalt mixing plants from small to large-scale to cater to the needs of different customers. The asphalt mixing plants can be divided into two main categories: (i) conventional hot-mix asphalt mixing plant (“Conventional Plant”); and (ii) recycling hot-mix asphalt mixing plant (“Recycling Plant”). The asphalt mixtures produced by the asphalt mixing plants of the Group can be used in the construction and maintenance of all levels of roads and highways. The Recycling Plants of the Group, in addition to producing regular asphalt mixtures, can also produce recycled asphalt mixtures which contain a combination of reclaimed asphalt pavement and new materials such as bitumen, aggregates and fillers. The use of Recycling Plants achieves the objectives of resources recycling and cost saving in the production of asphalt mixtures. During the year, the Group continued to participate in top-tier highways construction and maintenance projects in the PRC and overseas countries. There were forty-six (2018: thirtytwo) sales contracts of asphalt mixing plants completed by the Group during the year and the asphalt mixing plants were used in major highway construction and maintenance projects such as Gaoguang Expressway (高廣高速), Wenlai Expressway (文萊高速公路), G109 Jingzang Expressway Tibet section (G109線京藏高速西藏段), Xiaoxianhong Expressway (孝仙洪高速公路), etc. Due to the increase in number of road construction projects in China, revenue from sales of asphalt mixing plants increased by approximately 44.3% during the year, whereas, the sales of asphalt mixing plants accounted for approximately 84.4% (2018: 79.5%) of the total revenue of the Group. Though the total revenue of the Group increased by 36.0% to RMB446,426,000, the Group’s gross profit margin decreased to 19.7% (2018: 29.9%) which was primarily due to (1) increase in demand for customised asphalt mixing plants resulting in an increase in manufacturing costs; (2) impairment of inventories amounted to RMB27,441,000 (2018: RMB3,992,000) as a result of slow moving raw materials and work in progress; and (3) impairment loss of property, plant and equipment of RMB5,870,000 was made during the year (2018: Nil) as a result of the continuing operating loss from operating lease business. During the year, the demand for customised asphalt mixing plants increased because of stringent environmental protection requirements in the PRC. In order to meet the specific requirements of individual customers, additional manufacturing costs for the customisation of asphalt mixing plants incurred and resulted in the decrease in gross profit margin. Besides, the increase in demand for customised asphalt mixing plants also led to a change of design of standard components resulting in a provision of slow moving raw materials and work in progress made during the year. The Group has reviewed the ageing of inventories and developed procedures to utilise the slow moving inventories and expected the ageing of inventories could be improved gradually. In order to improve profitability, the Group has increased its selling price and imposed stringent controls to minimise its manufacturing costs. It is expected that the gross profit margin can be improved gradually in coming years. On the other hand, the Group made a gross loss in the operating lease business since 2018 which was mainly due to the delay in public-private partnership projects in China and hence there were inadequate production of asphalt mixtures of the plants leased to its customers. Since the rental income of the plants was based on the production output of asphalt mixtures, the decrease in production output directly affected the rental income of the Group. As a result, the rental income was not able to cover the fixed overhead of the plants and resulted in a loss making position. In order to scale down the operating lease business, the Group has disposed five asphalt mixing plants deployed to operating lease business during the year. As at 31 December 2019, there were twelve plants under operating lease business (31 December 2018: sixteen). The Group expected that loss of the operating lease business would be narrowed down next year and turned back to a profitable business once the optimal size of operating lease business is achieved. Management has been cautiously monitoring the collection of trade receivables in order to improve the collection cycle. During the year, management continued to put effort in receivable collection and also tightened its credit controls on new and existing customers. The Group has recovered certain long overdue trade receivables of which provision for impairment loss has been made in prior years and re-assessed the recoverability of its trade receivables. Since there are increased number of road construction projects in China and funding in place, the overall settlement from customers has been improved. The Group therefore made a reversal of provision for impairment loss of trade receivables of approximately RMB34.8 million during the year. Nevertheless, the Group shall strictly adhere to its credit policy and continuously strengthen its internal control procedures so as to improve the receivable collection cycle and shorten the debtors’ turnover days. The Group continued to expand its business and entered into potential markets along the “Belt and Road” countries. Out of the forty-six sales contracts of asphalt mixing plants completed during the year, five were completed in overseas countries including Russia, India and Kazakhstan. Although the overseas road construction projects along the “Belt and Road” countries slowed down during the year, the Group has signed one sales contract with a customer in Bahrain which is expected to be completed in the first half of 2020. As at 31 December 2019, two asphalt mixing plants were exported to Pakistan for the development of operating lease business in Pakistan. To further penetrate the markets in the developing countries, the Group has also developed a compact mobile asphalt plants series to the product line. Together with the established overseas network, the Group expects to participate in more upcoming road construction projects along the “Belt and Road” countries. Development of Upstream and Downstream Asphalt Related Business Asphalt mixture is the essential asphalt road construction material. The Group is committed to the development of asphalt related business along the supply chain with an aim to broaden income sources and raise profits. In order to leverage the synergies of local expertise, the Group has been exploring potential strategic partners to develop the production and sale of asphalt mixtures business. Establishment of Sichuan RTDL On 20 July 2018, the Group’s wholly owned subsidiary, Langfang De Feng New Materials Technology Limited* (“Langfang De Feng”), has entered into a shareholders’ agreement with Sichuan Xin De Yuan Trading Limited* (“Sichuan Xin De Yuan”), an independent third party, to establish a new company, Sichuan Rui Tong De Long New Materials Technology Limited* (“Sichuan RTDL”) for the purpose of establishment of asphalt mixture plant station in Sichuan. Pursuant to the shareholders’ agreement, the registered share capital of Sichuan RTDL amounted to RMB10 million of which Sichuan Xin De Yuan and Langfang De Feng should contribute RMB6 million and RMB4 million, respectively, within 4 years from the date of incorporation of Sichuan RTDL. Sichuan RTDL has obtained its business license on 14 August 2018. In order to commence the operation of Sichuan RTDL, both shareholders have partially contributed its capital to Sichuan RTDL. As at 31 December 2019, the Group has contributed capital of RMB1 million to Sichuan RTDL and recorded its investment as “Interests in associates”. The Group expected that with the leverage of local expertise of Sichuan Xin De Yuan, the establishment of Sichuan RTDL would push forward the application of asphalt mixture plant station with local government in Sichuan. On 7 March 2020, Langfang De Feng has entered into a supplemental shareholders’ agreement with Sichuan Xin De Yuan to increase the registered share capital of Sichuan RTDL from RMB10 million to RMB12 million. Sichuan Xin De Yuan and Langfang De Feng should contribute RMB6 million and RMB6 million, respectively. Development of combustion technology During the year, the Group continued to conduct research on the combustion technology in order to develop the business of manufacturing and sale of burner combustion equipment and the provision of related technical support services. The burner combustion equipment can be applied in a wide spectrum including asphalt mixing plants, furnace, heating system, etc. As at 31 December 2019, thirty-one (31 December 2018: twenty-six) patents of combustion technology were registered and eight patents were pending registration. Research and Development To maintain its position as a leading market player in the road construction and maintenance machinery industry focusing on medium to large-scale asphalt mixing plants, the Group continued to maintain its strong research and development capabilities. As at 31 December 2019, the Group had one hundred and nine registered patents in the PRC (of which four were invention patents) and twenty-six software copyrights. In addition, twenty-five patents were pending registration as at 31 December 2019. Marketing and Awards The Group places great emphasis on the marketing and promotion of its brands, products and services offered and leverages different online platforms, including global trading B2B online platforms, mobile websites, LinkedIn and the WeChat platform to offer better services to customers and establish a better brand image in both the PRC and overseas markets. During the year, the Group participated in various promotional events and technical seminars such as the China Hefei Construction Technical Seminar held in Hefei, the IIBT and CONMINE 2019 held in Indonesia, the Bauma CTT Russia 2019 held in Russia and the Belt and Road Summit 2019 held in Hong Kong. In March 2019, the Group was awarded the “HKQAA Green Finance Certification Mark” which was organised by the Hong Kong Quality Assurance Agency. In May 2019, the Group was awarded as an “EcoChallenger” and “3 Years + EcoPioneer” in the BOCHK Corporate Environmental Leadership Awards which was organised by the Federation of Hong Kong Industries and Bank of China (Hong Kong). The awards are recognition of the Group’s contribution to the promotion of environmental protection. In September 2019, the Group was awarded the Industry Cares 2019 by the Federation of Hong Kong Industries. In December 2019, the Group was awarded the “Hong Kong Green Awards 2019 – Corporate Green Governance Award” which was organised by the Green Council. The Group has won this award for four consecutive years. It is a recognition of the Group’s commitment to green governance. Ms. Glendy Choi, the Group’s chief executive officer, was invited to be the speaker at a College Lecture of the Youth Training Program organised by Hong Kong Young Industrialists Council on 8 March 2019. During the forum, Ms. Glendy Choi shared her experience and view with the college students on how to succeed in the asphalt mixing plant industry and how the Group seized the opportunities under the “Belt and Road Initiative”. The forum received keen and positive responses. Prospects: In view of the ongoing US-China trade war and recent coronavirus epidemic, the Group believes the PRC government will continue adopting policies to stimulate the local economy and increase the fixed asset investment. Besides, in light of growing awareness on environmental protection among the road construction and maintenance companies and the PRC government’s emphasis on reducing pollution from industrial sector, the Group expects the demand for the Group’s recycling and environmentally-friendly products continues to grow in the long run. There will be increasing demand for the recycling asphalt plants as well as the modification services of adding recycling and environmental protection functions to existing plants. The Group will further promote green technology innovation and continue to improve its competitive advantage so as to reinforce its leading position in the market. Investment in infrastructure overseas, for the PRC government, is a way of building up strategic partnerships with countries along the “Belt and Road” region. Though there was a slowdown in the “Belt and Road” activities in 2019, it is expected that the “Belt and Road Initiatives” shall continue once the US-China trade war has cooled down. The Group is honored to participate in the major expressway construction projects of the “China-Pakistan Economic Corridor” and shall grasp the business opportunities arising from “Belt and Road” construction projects led by Chinese state-owned enterprises. Since the technologies of the Group’s asphalt mixing plants are widely adopted in countries except the United States of America (the “US”), the Group does not export its products to the US. The US-China trade war does not have direct impact on the Group’s performance during the year. However, the Group expects that the ongoing trade war may affect the economies of some of the “Belt and Road” countries which will indirectly affect the Group’s export businesses. The Group expects that the local demand for asphalt mixing plants shall gradually increase as the PRC government has injected more funds into domestic infrastructure projects to soften the possible blow to the economy from the US-China trade war and the coronavirus epidemic. The Group has also entered into agency agreements with various direct marketing agencies in India and expected that more sales orders can be obtained from India in the near future. The management also expects the customers shall accelerate the settlements going forward as more road construction projects and funding shall be in place in China. With its established overseas network and high-technology asphalt mixing plants, the Group is prepared to grasp the opportunities of upgrading asphalt mixing plant technology and equipment in countries such as India and in the ASEAN region. To utilise the Group’s wide clientele base of over 500 asphalt plants spreading across the whole PRC and 31 nations overseas, the Group is also exploring business opportunities in developing business upstream into the road construction and maintenance materials supply chain and downstream into the asphalt mixture provision. The Group will however manage its business development strategies cautiously due to the relatively volatile international economic and political condition.

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