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Public company info - MEGAIN Holding (Cayman) Co. Ltd. , 06939.HK

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MEGAIN Holding (Cayman) Co. Ltd., 06939.HK - Company Profile
Chairman Cheng Hsien-Wei
Share Issued (share) 500,000,000
Par Currency Hong Kong Dollar
Par Value 0.01
Industry Industrial Goods
Corporate Profile Business Summary: The Group is one of the leading providers of compatible cartridge chips based in the PRC. Performance for the year: The majority of the group’s revenue generated during the Track Record Period was derived from the sale of compatible cartridge chips. For the years ended 31 December 2017, 2018 and 2019 and 10M2020, the group’s total revenue was approximately RMB212.8 million, RMB246.1 million, RMB157.6 million and RMB133.6 million, respectively. Business Review The group is one of the leading providers of compatible cartridge chips based in the PRC. According to the CIC Report, the group ranked second with a market share of approximately 11.1% in terms of external sales, and third with a market share of approximately 4.3% in terms of production volume in the PRC compatible cartridge chip market in 2019. The group’s products are one of the core components of compatible cartridges, which are printer consumables designed and manufactured by third-party cartridge manufacturers and include ink cartridges for use in inkjet printers and toner cartridges for use in laser printers. The principal functions of a compatible cartridge chip include facilitating communication between a compatible cartridge and the original-brand printer in which such a cartridge is installed, and monitoring cartridge usage. The group take pride in the group’s ability to introduce new models of compatible cartridge chips to the market in a timely manner, as a result of which the group were able to record higher levels of profit margins throughout the Track Record Period. The group have been devoted to design and development of the software component of the group’s products, i.e. the firmware; as for the hardware component, i.e. the PCBAs, the group may either directly source them from external suppliers, or engage subcontractors to produce them based on the group’s own designs. The compatible toner cartridge chip business has always been at the heart of the group’s Group’s operations. Since the group’s establishment, the group have been committed to the research and development, production and sales of compatible toner cartridge chips. In 2012, the group became the first market player to offer compatible cartridge chips designed for several specific laser printer models, and had remained the exclusive supplier of such compatible cartridge chips in the global market until one year after they were launched by the group’s Group. This paved the way for the initial expansion of the group’s compatible toner cartridge chip business. Building on the success, the group have been actively developing other models of compatible toner cartridge chips over the years so as to enrich the group’s product portfolio and increase the group’s competitive strength, thereby firmly establishing the group’s position as one of the leading market players, being the second largest compatible toner cartridge chip provider in the PRC by external sales in 2019. Given the limited research and development resources of the group’s Group and the fact that the group’s compatible toner cartridge chip business had been performing well, the group had not devoted substantial effort to the development of compatible ink cartridge chips prior to the Track Record Period. Before 2019, the group had only been offering a narrow range of compatible ink cartridge chip models, which were proactively designed by us for recycled compatible ink cartridges and launched in 2015. The relatively small amount of sales of compatible ink cartridge chips recorded in 2017 and 2018 was wholly attributable to such older chip models. Other than these chip models, the group’s Group had not launched any other compatible ink cartridge chip models before 2019. As it was foreseeable that the number of new printer models to be launched by the original-brand printer companies in 2019 would remain limited, the group’s Directors resolved in 2018 that the group’s Group should actively explore other opportunities in the market by diverting more of the group’s product development resources into compatible ink cartridge chips. In 2019 (mostly in the second or third quarter), the group successfully launched the Ink Cartridge Chip Models, being several new models of compatible ink cartridge chips with advanced quality, functionality and upward compatibility for compatible ink cartridge models having high popularity and demand in the market. The majority of the sales of such chip models were made to Listed Group A during the Track Record Period, as the group have not focused the group’s sales and marketing efforts on promotion of the Ink Cartridge Chip Models to other independent customers given that it would be advisable to minimise direct competitions with Listed Group A (being the dominant market player) when the group have yet to gain a significant position as a market player with highly established operations or a comprehensive product portfolio in the compatible ink cartridge chip market. The launch of such chip models helped the group’s Group cope with the significant decline in the average market selling price of compatible toner cartridge chips in 2019 as expected. While the group’s market share in the compatible ink cartridge chip market was small in 2017 and 2018 amounting to approximately 4.2% and 3.9% by external sales and 1.3% and 1.3% by external sales volume respectively, due to the launch of such chip models with significant prevailing market demand, the group became the second largest compatible ink cartridge chip provider in the PRC by external sales in 2019. That being the case, the group’s operations in the compatible ink cartridge chip market remain relatively limited – in terms of external sales volume, in 2019, the group’s market share as a provider of compatible ink cartridge chips in the PRC was approximately 3.2% only, whereas the group had a market share of 8.1% in the compatible toner cartridge chip market in the PRC. Please refer to the paragraphs headed “The group’s Products — Compatible Toner Cartridge Chips as The group’s Major Business Focus since Establishment” in this section for further details of the group’s historical business developments Compatible cartridges are generally considered a cost-effective alternative to the cartridges offered by the original-brand printer companies, with its major market being in the United States, Europe and the PRC. According to the CIC Report, in 2019, compatible cartridges accounted for approximately 21.1% of the global demand for cartridges in terms of sales volume, and the proportion is projected to grow to 22.8% in 2024. Compatible cartridges have gained increasing popularity over the years in the PRC and overseas for the reasons that (1) it can effectively lower the printing costs as compatible cartridges typically sell at lower prices than the original-brand cartridges; (2) as the technical capability of the design companies and manufacturers continues to evolve, the functionality of compatible cartridges can match up to that of the original-brand cartridges in general and the use of compatible cartridges may not result in any material difference in printing quality; and (3) the Chinese government has officially incorporated domestically produced compatible cartridges into the government procurement list. The demand for compatible cartridges may be less affected during the times of economic downturn, when the consumers may become particularly concerned to reduce printing costs. With the growing popularity of compatible cartridges, the global sales volume of compatible cartridge chips, as a core component of compatible cartridges, is expected to exhibit comparable steady growth during the period from 2019 to 2024. The group’s expertise lies in the research, design and development of compatible cartridge chips, and the group have made significant investments in this regard. Keeping a close watch on the developments in the printer market, the group would proactively take advantage of new market opportunities and undertake research and development work on the group’s own initiative. The group’s product development process starts with a comprehensive analysis of a new original-brand printer and its accompanying cartridges. Leveraging the group’s know-how, after gaining an understanding of the functions of the original-brand printer and cartridges, the group develop the group’s chips based on the group’s conceptualisation of the principles and logics of operation, with a view to achieve compatibility in terms of functionality and performance. Specifically, the group would draw up the specifications of the hardware component of the group’s chips, and simultaneously design and develop the software component through the group’s own endeavours. The hardware component, i.e. PCBAs, are principally assembled by the group’s subcontractors based on the group’s specified configurations and the group would also procure PCBAs directly from external suppliers. While the group’s chips generally have different structural features as compared with the original-brand cartridge chips and the source codes of the software component are designed and created independently by us, the group would seek to ensure that the group’s products would fit in well with the compatible cartridges designed for the relevant printer model and enable them to function with efficacy when installed in the printers. During the Track Record Period, the group had introduced over 620 new models of compatible cartridge chips. As at the Latest Practicable Date, the group had in total 20 registered patents which were material to the group’s business and the group’s applications for the registration of 31 material patents were pending. The group’s patents mainly involve the designs and technologies relating to cartridge chips, including circuit designs, algorithm and firmware installation. The group’s expenses incurred for research and development work amounted to approximately RMB7.2 million, RMB7.5 million, RMB9.3 million and RMB11.0 million for the years ended 31 December 2017, 2018 and 2019 and 10M2020 respectively. According to the CIC Report, while the US authorities have conducted certain compatible-cartridge-related patent infringement investigations targeting Chinese companies, such investigations pertain to the cartridges’ external physical structure only and do not involve compatible cartridge chips or their providers. During the Track Record Period and up to the Latest Practicable Date, the group had not been involved in any legal proceedings in relation to any alleged infringement of third-party intellectual property rights by us. Strategically headquartered in Zhuhai which has a dominating position in China’s cartridge industry, the group have established branch offices which focus on research and development work in Taiwan, Shanghai and Hangzhou to take advantage of the talent supply in different regions and reinforce the group’s technical ability in the design and development of compatible cartridge chips. The group believe the group’s well established talent pool underlies the group’s ability to swiftly introduce products that answer the fast-changing demands of the group’s customers amid constant technological advancement. In addition to strong product design capabilities, a skilful and experienced workforce and know-how in the development of various compatible cartridge chips gained through the group’s operations, the group have also developed good relationships with a wide network of suppliers and subcontractors for different procurement and subcontracting arrangements in the production process. The group is therefore well positioned to provide compatible cartridge chips to the needs of the group’s customers in a cost-effective manner with a shorter time to market ahead of the group’s competitors. It dovetails with the group’s strategy to maintain the group’s profitability through proactively introducing new products from time to time so as to enjoy the first-mover advantage, given that the price and profit margin of a new model of compatible cartridge chips are usually at the highest points in the introduction stage when there are few companies offering compatible cartridge chips designed for the relevant printer model, and tend to decline later on when more companies have launched products with similar features and competition in the market intensifies. For the years ended 31 December 2017, 2018 and 2019 and 10M2020, the group recorded a gross profit margin of approximately 44.3%, 47.1%, 55.9% and 54.7% and a net profit margin of 29.7%, 25.4%, 26.2%and 19.2% respectively. To reach the group’s potential customers which are mainly manufacturers of compatible cartridges, the group actively participate in industry fairs and exhibitions relating to their businesses. For example, the group have been a participating merchant in the RemaxWorld Expo, one of the largest trade shows for the cartridge industry in China, and expanded the group’s reach by taking part in international trade fairs and exhibitions in America, Europe and other parts of Asia. The group’s Directors believe that the group’s regular participation in domestic and international trade fairs and exhibitions allows us to connect with new customers in both the Chinese and the global market to achieve the group’s objective of expanding the group’s presence in the compatible cartridge chip industry. The majority of the group’s revenue generated during the Track Record Period was derived from the sale of compatible cartridge chips. For the years ended 31 December 2017, 2018 and 2019 and 10M2020, the group’s revenue derived from sales of compatible cartridge chips was approximately RMB194.2 million, RMB220.6 million, RMB150.6 million and RMB122.8 million, representing 91.3%, 89.7%, 95.6% and 91.9% of the group’s total revenue, and the group sold approximately 11.3 million, 13.2 million, 17.1 million and 17.2 million pieces of compatible cartridge chips, respectively. The decrease in the group’s revenue from sales of compatible cartridge chips in 2019 was associated with the overall low levels of market prices in the compatible cartridge chip industry in 2019, which was principally attributable to the US-China trade war, limited number of newly launched models of printers, industry consolidation, and intensified market competition as the root causes. The adoption of the price-cutting strategy by the major market players in response also further contributed to the intensification of the market competition and consequently the fall in the average market prices in 2019. In addition to provision of compatible cartridge chips, the group were also engaged in trading of ICs and other cartridge components, including plastic parts and toner among others, as ancillary services to the group’s customers. For the years ended 31 December 2017, 2018 and 2019 and 10M2020, the revenue derived from trading of such products accounted for approximately 8.7%, 10.3%, 4.4% and 8.1% of the group’s total revenue, respectively. The group’s profit for the years ended 31 December 2017, 2018 and 2019 and 10M2020 was approximately RMB63.1 million, RMB62.6 million, RMB41.3 million and RMB25.6 million respectively. Prospects: The group’s principal goal is to maintain and strengthen the group’s position as a leading compatible cartridge chips providers in the PRC. To meet the group’s goal, the group intend to implement the following key business strategies: (i) to strengthen the group’s product development capacity and diversify the group’s product portfolio; (ii) to accelerate the development of the group’s hardware design capabilities through acquisition of IC design company; (iii) to increase the group’s presence in the compatible cartridge industry through forward vertical expansion; (iv) to step up the group’s sales and marketing efforts to cater for the expansion of the group’s product offerings; and (v) to improve the functionality of the group’s back office to support the group’s business growth.

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