Brilliant Circle Holdings 贵联控股: Company Analysis Part II
Laminated papers
segment is considered part of the cigarette packaging's side business.
This segment produces environmental safe composite transfer paper and
aluminium foil used for package of cigarette, food and wine boxes.
Operating profit margin has been consistently above 20%, but revenue
contribution to the group is not significant.
Book printing
services segment is the previous core business of the group, but the
place was taken by the cigarette packaging division after the
consolidation. This segment was not good all this while. Revenue and
Operating profit margin getting lower and lower due to stiff competition
from the foreign companies. I guess that is the reason why the group
disposed its book printing business in Dec 2014 for HKD109 million and
focus on its core business.
The revenue and
operating profit margin for the cigarette packaging has been improving
after consolidated into the group. The growth rate of its revenue is
good and almost hit double in 3-year time as a result of acquisition and
organic growth
The key men of the
group is are them, especially Mr Tsoi Tak who is the founder and
chairman of the group while Mr David Cai is his son and probably the man
who continue to drive growth for the group in future. Mr Qin and Mr
Kiong is the COO and Executive director of the group, taking care of the
operation and marketing of the group respectively.
Mr Tsoi Tak owning
51% shareholder stake of the group while his son, Mr David Cai taking
5.9% direct ownership. Mr Kiong taking very negligible stake in the
group while no ownership for Mr Qin. Mr Tsoi Tak took a hopping total
HKD24 million of emoluments at which half of it was incentive
performance bonus in FY2013.
For the first half
FY2014, the performance of the group dropped as a result of slowed
orders from the high tier market as they stockpiled around the end of
2013. To make it worst, administrative expenses increased tremendously
due to increase in director remuneration, staff welfare and
entertainment expenses. So, the management team and employees were
taking higher pay when the company's performance was dropping.
As noted in the
announcement, the group has strategically expanded its post press
services which in selected brands can offer higher profitability and
lower working capital commitment.
Balance sheet improved a bit with borrowings reduced. So, expected lower finance costs moving forward.
When looking at the
segment reporting, it's obvious that the other cause for the
performance drop was due to the loss making of the book printing
business segment although it's not that significant in terms of profit
contribution. The group made a decision to dispose this division last
December.
Apart from that,
it's noted that the operating profit margin of the cigarette packaging
also dropped to 35%. It's similar case for the laminated papers
division.
The group made a couple of corporate announcement in this few months.
First, the group
acquired the 40% it does not owned in Giant Sino in Nov 2014 for HKD82.4
millions. Thus moving forward, the profit will be fully consolidated
into the group's bottom line.
In Jan 2015,
Masterwork Machinery (Manufacturers of printing equipment) has entered
into framework agreements to acquire 251 millions shares of the group
which represent around 16.9%. I think there will be certain synergy
effect between the equipment manufacturer and the group as it may
provide equipment with better and higher technology to the group in
future.
In a separate case
in Jan 2015, a third party group also tend to acquire 103 millions
shares of the group which represent 6.95%. Not sure about this as the
info is quite limited.
The cigarette
packaging market is generally a capital intensive industry which require
large amount of investment in both plant and equipment.
Furthermore, anti counterfeit technology and environmental protection
technology set up a high entry barrier for new entrants in cigarette
packaging industry.
Both AMVIG and Brilliant Circle also having a hard time this year and both also will release their full year result soon.
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