Source: Zhitong Finance

Following the secret submission to the SEC on June 1, 2022, Samfine Creation Holdings Group Limited (hereinafter referred to as "Xinghui Printing"), the holding company of Shenzhen Xinghui Cloud Printing Technology Co., Ltd. from Guangdong, officially disclosed the public prospectus in the SEC on November 13, 2023, which means that the listing journey of Xinghui Printing in the United States will be further accelerated.

According to the prospectus, Xinghui Printing applied to be listed on NASDAQ with the code of "SFHG". The company plans to issue 2.5 million shares in this IPO, with a price of 4 to 5 dollars per share, to raise up to 12.5 million dollars.

From the perspective of performance, the revenue of Xinghui Printing in 2021 and 2022 will be 162 million Hong Kong dollars and 129 million Hong Kong dollars respectively, and the net profit of the same period will be 2.81 million Hong Kong dollars and 3.6515 million Hong Kong dollars respectively; By the first half of 2023, the company's revenue will be HK $50.8 million, compared with HK $67.15 million in the same period last year, and the corresponding net profits will be HK $-3797500 and HK $1617200 respectively.

Why does the company's revenue continue to decline? And the net profit fluctuates significantly? What is the future development of Xinghui Printing? The answer can be found by analyzing the company's prospectus.

The continuous decline in the revenue of printed books dragged down the overall revenue performance

Xinghui Printing is an old player in the printing industry. The company has accumulated more than 20 years of business experience in the printing industry and has now developed into a mature one-stop printing service provider. According to the prospectus, the main customers of Xinghui Printing are book dealers in Hong Kong, whose customers are all over the world, mainly including the United States and Europe, which also means that the products of Xinghui Printing have gone to the global market through the hands of dealers.

At present, Xinghui Printing has formed a rich product system, which can provide customers with diversified book products and novel packaging product services. Among them, book products refer to children's books, education books, art books, and notebook journals. Novelty packaging products refer to handicrafts, set books, three-dimensional books, stationery products, products with assembly parts and other special products, shopping bags and packaging boxes.

From the prospectus, we can find that the reasons for the continuous decline of Xinghui's printing revenue are different. In 2022, Xinghui's printing revenue will decline by 20.1% to HK $129 million, which is due to the temporary closure of the company's factory due to the impact of the epidemic, which will cause the sales of printed books to drop by nearly 40%, while the revenue of novelty packaging products will increase by 9.26% to HK $70.016 million, but it is still difficult to offset the drag on the total revenue caused by the sharp decline in sales of printed books.

However, when the revenue of Xinghui Printing fell by 20% in 2022, the net profit of the company in the same period increased by nearly 30% to HK $3651500. This was mainly due to two factors. One was the reduction of raw material costs, which increased the gross profit margin of the company by 4.2 percentage points to 21.5%; Second, the company received a subsidy of HK $2088300 during the reporting period, which significantly increased the company's net profit level.

In the first half of 2023, the total revenue of Xinghui Printing continued to decline, with a year-on-year decline of 24.4% to HK $50.8 million. Among them, the revenue of printed book products dropped by nearly 50% to HK $23.8515 million, but this decline was not due to the impact of the epidemic, but due to the decline in market demand. The revenue of novelty packaging products increased by 34.55% to HK $26948800.

Although the gross profit rate of Xinghui Printing in the first half of 2023 remained stable as a whole, due to the significant growth of general and administrative expenses, Xinghui Printing directly changed from profit to loss of HK $3.7975 million in the reporting period, compared with a profit of HK $1.6173 million in the same period of 2022.

From the above analysis, it can be seen that the situation faced by the book products of Xinghui Printing is not optimistic. It is not difficult to understand the decline in revenue caused by the epidemic in 2022, but in the first half of 2023, the revenue continued to decline due to insufficient market demand, which forms a significant contrast with the accelerated development of novelty packaging products with the resumption of production and operation activities, Therefore, it remains to be seen whether book products can return to the upward trend.

Customers and suppliers are too concentrated to be questioned

Since the main customers of Xinghui Printing are Hong Kong dealers, it is necessary to have a certain understanding of the industry development trend to judge the development prospects of Xinghui Printing.

Hong Kong book dealers mainly face the US and European markets. These dealers directly obtain overseas printing contracts through their overseas offices and outsource the orders to printing companies in Hong Kong, such as those operated by Xinghui Printing House.

According to the data of the Hong Kong Trade Development Council, the majority of Hong Kong's total printed matter exports can be attributed to China's re export. Hong Kong's total printed matter exports in 2020, 2021 and the first ten months of 2022 are about HK $13.858 billion, HK $15.769 billion and HK $8.579 billion respectively, of which 80.4%, 81.6% and 79% are entrepot goods originating in China.

According to the data of the National Bureau of Statistics of China, from 2016 to 2021, the total export volume of Chinese printed books, pamphlets, leaflets and other printed materials, as well as children's picture books, picture books or coloring books increased from about 3.613 billion dollars to about 4.358 billion dollars, with a compound annual growth rate of 3.17%, which indicates that overseas demand for Chinese printed books and printed material products has steadily increased, But the whole printing export market has entered a relatively mature stage.

Because the printing export industry has entered a relatively mature stage, the industry is also a highly competitive market, which is also reflected in the profitability of Xinghui Printing. In 2021 and 2022, the net profit level of Xinghui Printing is only 1.73% and 2.8%, and its profitability is relatively low.

In order to continue to develop in such a competitive market, Xinghui Printing disclosed the company's future development strategy in the prospectus. The company will launch from the following four aspects: first, upgrade production equipment, improve production efficiency and automation level; The second is to strengthen sales and marketing work and expand customer base; The third is to expand the company's market share in the international market, especially in the United States market; Fourth, the company will selectively carry out acquisitions and strategic investments.

It remains to be seen whether the implementation of the above four development strategies will enable Star Printing to grow in the highly competitive market. However, the potential operational risks faced by the company at present deserve the attention of investors. The customers and suppliers of Star Printing are too concentrated.

According to the prospectus, in the first half of 2023, Xinghui Printing's revenue from three customers accounted for 31.5%, 24.9% and 24.1% respectively, with a total of 80.5%; In 2021, the revenue from four customers will account for 22.7%, 20.5%, 18.3% and 13.7% respectively, accounting for 75.2% in total; In 2020, the revenue from three customers accounted for 27.2%, 24.5% and 22.7% respectively, accounting for 74.4% in total.

In terms of suppliers, in the first half of 2023, the purchase volume of Xinghui Printing from the two suppliers will be 29.5% and 15.7% respectively, 45.2% in total; In 2022, the purchase volume of Xinghui Printing from three suppliers will be 17.6%, 17.5% and 16.3% respectively, accounting for 51.4% in total.

The over concentration of customers and suppliers will lead to the close relationship between the survival and development of the enterprise and the operation of such customers and suppliers, and the potential operational risk will rise. When the International Department of the China Securities Regulatory Commission issued the requirements for the supplementary materials for the filing of overseas issuance and listing, it also required Xinghui to print and explain the reasons and rationality of the high concentration of suppliers and customers.

To sum up, the repeated epidemic has had a certain impact on the past performance of Xinghui Printing, but after the elimination of the impact of the epidemic, it remains to be seen whether the book products can recover with the recovery of production and business activities; Moreover, printing and packaging export is a relatively mature industry, and the competition is very fierce, which is also reflected in the net interest rate of Xinghui Printing, which does not exceed 3%; In addition, the company is faced with the potential operational risk of over concentration of customers and suppliers. In the long run, it will be a big challenge for Xinghui Printing to achieve sustainable growth.

Editor in charge: Shi Wenrui