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Public company info - Yadong Group Holdings Limited , 01795.HK
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Yadong Group Holdings Limited, 01795.HK - Company Profile
Chairman Xue Shidong
Share Issued (share) 600,000,000
Par Currency Hong Kong Dollar
Par Value 0.01
Industry Textile & Apparels
Corporate Profile Business Summary: The group principally engage in the design, process and sale of textile fabric products. Performance for the year: The group’s revenue increased from approximately RMB661.7 million in 2017 to approximately RMB861.5 million in 2018 and further to approximately RMB866.7 million in 2019, representing a CAGR of approximately 14.4%; whereas the group’s net profit increased from approximately RMB30.6 million in 2017 to approximately RMB49.1 million in 2018 and further to approximately RMB52.7 million in 2019, representing a CAGR of approximately 31.3%. Business Review The group principally engage in the design, process and sale of textile fabric products. the group also engage in the provision of just processing services. the group’s textile fabric products can be categorised into two broad types, namely (i) plain weave fabrics; and (ii) corduroy fabrics. the group’s textile fabric products feature a variety of different colours, patterns, textures and functionalities. the group sell the group’s textile fabric products mainly to garment manufacturers as well as trading companies. To the best of the group’s knowledge, during the Track Record Period, most, if not all, of the group’s textile fabric products were purchased by the group’s customers for further processing into finished garments for apparel brand operators, some of which were operators of international or national brands, such as UNIQLO and Semir. During the Track Record Period, the group’s textile fabric products were mainly sold or distributed in the PRC, Japan and certain other markets in Asia, such as Taiwan, Vietnam, Bangladesh and Indonesia. The group trace the group’s roots back to 2011 when Yadong (Hong Kong) was incorporated in Hong Kong. Since 2011, the group’s Group has been engaging in the sale of textile fabric products until 2014 when the group expanded the group’s business to design and processing of textile fabric products through Yadong (Changzhou), which was established in the PRC in 2014. The group’s production facilities are located in Changzhou city, Jiangsu province, the PRC. According to the Ipsos Report, Jiangsu province is one of the five major industry clusters of the textile dyeing and finishing industry in the PRC and a significant location for the production of dyed and printed fabrics in the PRC, and in 2019, Jiangsu province accounted for approximately 13.8% of the total production volume of printed and dyed fabrics in the PRC. Please refer to ‘‘Industry overview — Overview of the textile dyeing and finishing industry’’ in this document for further details. THE GROUP’S BUSINESS MODEL AND OPERATIONS The group’s business model is founded on the group’s core values in delivering high quality, timely and reliable services, meeting customer expectations and continually improving customers’ satisfaction, and maintaining an environmentally friendly manufacturing process. the group operate on the group’s ‘‘customeroriented’’ principle where the group respond to the group’s customers’ specific product requirements. the group also take the initiative to design, develop and offer the group’s self-designed and self-developed textile fabrics to the group’s customers. Certain apparel brand operators may directly approach us to procure textile fabrics with specific attributes. Similarly, the group may present the group’s self-designed and self-developed textile fabrics to apparel brand operators for their consideration to meet the ever-changing fashion trends and the demand for more varieties and functionalities of textile fabrics. During the Track Record Period, the group also engaged in the provision of just processing services. During the Track Record Period, the group’s production volume amounted to approximately 41.4 million metres, 41.5 million metres, 43.6 million metres and 9.95 million metres, respectively, representing a utilisation rate of approximately 98.4%, 98.6%, 103.5% and 70.7%, respectively. For further details, please refer to ‘‘Business — Production process — Production capacity and utilisation rate’’ in this document. THE GROUP’S CUSTOMERS During the Track Record Period, the group’s customers purchasing the group’s textile fabric products principally consisted of garment manufacturers as well as trading companies. As for the group’s provision of just processing services, the group’s customers were mainly textile manufacturers and trading companies. the group have established stable relationships with the group’s major customers. Among the group’s top five customers during the Track Record Period, the group have been providing products to them for a period ranging from two to five years. For the Track Record Period, the percentage of revenue attributable to the group’s largest customer amounted to approximately 11.9%, 14.5%, 9.9% and 12.8%, respectively, while the percentage of total revenue attributable to the group’s top five customers amounted to approximately 41.3%, 38.6%, 38.1% and 43.3%, respectively. The group have established good business relationships with some apparel brand operators that are internationally or nationally well-known, such as UNIQLO and Semir. the group have established a longterm business relationship with UNIQLO since 2014 and with Semir since 2015. the group have been awarded by UNIQLO as one of their trusted business partners. Some of the group’s customers (including major customers) are the designated garment manufacturers or the designated trading companies of apparel brand operators who procure raw materials from us at the instructions of such apparel brand operators. To the best of the group’s Directors’ knowledge, during the Track Record Period, 12, 14, 14 and 15 of the group’s customers were the garment manufacturers or sourcing agents of UNIQLO, and the revenue contribution from these customers amounted to approximately RMB204.8 million, RMB316.3 million, RMB314.6 million and RMB64.7 million, representing approximately 31.0%, 36.7%, 36.3% and 38.9% of the group’s total revenue during the Track Record Period, respectively. During the Track Record Period, the group purchased greige fabrics from some suppliers who were also the group’s customers to whom the group provided processing services or sold the group’s finished fabric products. As confirmed by the group’s Directors, the service or products the group provided or sold to these overlapping customers and suppliers were entirely distinctive from the materials the group procured from them. the group’s Directors confirmed that the respective transactions were conducted in the ordinary course of the group’s business on normal commercial terms. According to the Ipsos Report, the overlapping relationship of customers and suppliers is considered one of the industry practices within the textile dyeing and finishing industry. INTRA-GROUP TRANSACTIONS During the Track Record Period, some of the textile fabric products produced by Yadong (Changzhou) were exported to third party overseas customers through Yadong (Hong Kong). Yadong (Hong Kong) was mainly responsible for solicitation and conclusion of sale transactions with overseas customers. Based on the analysis conducted with reference to similar market transactions and applying transaction net margin method, the Tax Adviser did not foresee any material income tax provision in respect of transfer pricing and that the aforesaid intra-group transactions did not appear to have material avoidance or evasion of income tax from transfer pricing perspective. Based on the confirmation by the Tax Adviser and the transfer pricing analysis of the Tax Adviser, the group’s Directors take the view that the transfer pricing arrangement between Yadong (Changzhou) and Yadong (Hong Kong) complies with the applicable transfer pricing rules and regulations in the PRC and Hong Kong. In addition, the relevant PRC tax authority confirmed that it had no concerns with the related party transaction tax filings filed by Yadong (Changzhou) in 2017, 2018 and 2019, and the risk that Yadong (Changzhou) would be liable to penalties for the related party transactions in 2017, 2018 and 2019 was remote. SUPPLIERS AND SUBCONTRACTORS The principal raw materials for the group’s production process comprise two broad categories, namely (i) greige fabrics; and (ii) textile dyes and additives such as colourants and dyeing auxiliaries. the group purchase the group’s raw materials from local suppliers in the PRC. Among the group’s top five suppliers during the Track Record Period, the group had procured materials from them for a period ranging from approximately one to five years. For the Track Record Period, purchases from the group’s largest supplier represented approximately 32.1%, 23.6%, 19.7% and 26.8% of the group’s total purchases, respectively, and purchases from the group’s top five suppliers accounted for approximately 64.2%, 66.0%, 62.1% and 79.9% of the group’s total purchases, respectively. the group’s principal raw materials are available from a large number of local suppliers and the group have more than one supplier for each type of raw material to reduce reliance on any single supplier. the group had not encountered any significant delays or shortages in the supply of the group’s raw materials during the Track Record Period. The group occasionally outsource certain production processes to third party subcontractors, in particular, where (i) the group’s Group does not possess the requisite equipment and/or techniques for such process, such as coating; and/or (ii) the quantity of the purchase order received exceeds the group’s Group’s production capacity and/or the purchase order received has to be fulfiled within a tight timeframe. During the Track Record Period, the group had engaged a total of 31, 33, 29 and 15 third party subcontractors, respectively for the provision of textile processing services and textile dyeing services. During the Track Record Period, the group’s subcontracting costs amounted to approximately RMB18.8 million, RMB35.3 million, RMB29.3 million and RMB2.7 million, respectively, representing approximately 3.2%, 4.7%, 4.0% and 1.9% of the group’s total cost of sales, respectively. Prospects: The group intend to implement the following business strategies to strengthen the group’s market position and maintain the group’s market competitiveness: (i) expand the group’s production capabilities and increase the group’s production capacity; (ii) expand the group’s product coverage to knitted fabrics; (iii) expand into the markets in Europe and the U.S. and broaden the group’s customer base in the PRC; (iv) continue to devote resources for the group’s product development capabilities; and (v) recruit more experienced personnel.

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