Judging from indicators such as issuance volume, trading volume, and the Hang Seng Index, the situation in the Hong Kong stock capital market in recent years has been full of challenges. Most capital, especially investment capital from the mainland, has generally poured into blue-chip stocks and H shares. However, shrouded in the dark clouds of the Hong Kong stock market, the Hong Kong Stock GEM (GEM) was not actively traded in the past. Not only did it not receive much attention from investors, but its liquidity and overall valuation were far lower than other markets.
In this context, some GEM companies have developed a desire to switch to the main board. There are also many familiar figures on the way to the transition board. For example, Extraordinary Leader (08032), the majority shareholder of Li Ning, submitted a transfer application in July 22.
Recently, the Hong Kong Stock Exchange welcomed another company that plans to be listed on the main board. Easy International Holdings (08659) submitted a listing application to the main board of the Hong Kong Stock Exchange in accordance with the provisions of Chapter 9A of the listing rules of the main board of the Hong Kong Stock Exchange. This also means that if the application is approved, Easy International Holdings will switch from GEM to Main Board listing. At about the same time, the company also submitted a listing prospectus on the Hong Kong Stock Exchange, with Changxiong Securities as the sole sponsor.
Takeout is on the rise, and disposable lunch boxes are “selling like hot”
In the post-epidemic period, with the recovery of the catering industry and the rapid development of the takeaway industry, the demand for disposable lunch boxes in the Chinese market rose rapidly, and production continued to expand, thus continuously driving the development of plastic products industries such as disposable lunch boxes. Easy International Holdings was one of the beneficiaries of the industry.
The Zhitong Finance App learned that EasyWorld was listed on GEM on July 13, 2020. It is mainly engaged in the design, development, production and sale of disposable plastic fast food boxes, followed by e-commerce business, which provides necessities of life and other household products. According to Frost & Sullivan's report, in 2022, the company was the tenth largest disposable plastic fast food box company in China in terms of sales revenue, with a market share of about 1.5%.
Yi International said in the transfer board announcement that since listing on the main board must comply with stricter profit and market capitalization regulations, investors generally believe that main board issuers enjoy a higher premium position. Therefore, listing the shares on the Main Board will further enhance the Group's corporate image and popularity among public investors, and will increase the attractiveness of the Group's shares to investors, expand the Group's investor base and increase the trading liquidity of shares.
Judging from the performance point of view, what Yi International said is true. If they want to achieve a transition, they must first have performance as a prerequisite. As far as finance is concerned, in 2020-2022, the company achieved revenue of 233 million yuan (RMB, same below), 263 million yuan and 287 million yuan respectively; in the same period, profits during the year were 20.76 million yuan, 35.231 million yuan and 33.814 million yuan respectively. Despite fluctuations, the overall level remained stable.
Judging from the business structure, the sale of disposable plastic lunch boxes is undoubtedly the backbone of the company's revenue. It was the company's single business in 2020 and 2021, with annual sales exceeding 200 million yuan.
According to information, disposable plastic fast food boxes are processed by injecting polypropylene resin or other thermoplastic materials using high-temperature hot melt plastic, and are commonly used to store food and beverages. Naturally, the development of this business is also closely related to the impact of the epidemic in recent years. Social isolation and working from home have catalyzed the growth in takeout demand, which has led to a strong increase in takeout order amounts. This can also be seen from Meituan's development — according to GF Securities estimates, in the fourth quarter of '22, Meituan's takeout orders excluding flash orders reached 4.23 billion orders, an average of about 46 million orders per day, an increase of about 8% over the previous year.
Under such circumstances, demand for the company's products increased simultaneously. Most of the customers came from Chinese companies engaged in the sale of disposable plastic fast food boxes, wholesale or retail of food and beverages, and the hotel business. A small number of customers were located overseas. In the past three years, the company's sales to the five major customers accounted for about 37.7%, 33.0% and 32.2% of its total revenue, respectively, while the company's sales to the largest customers accounted for about 12.1%, 7.3% and 7.4% of total revenue respectively.
In terms of capital, Easy International seems to have no shortage of money — as of 2022, the net cash generated by the company's operating activities was 34.191 million yuan, and cash on hand reached 118 million yuan at the end of the period. Even with stable business progress, it seems that Easy International should “worry” more about the risk of a single operation.
On the one hand, the production and operation threshold for disposable fast food boxes is low, and the market share is scattered. Even though the company is already the tenth largest disposable plastic fast food box company in China, its share is only 1.5%. There is no leading edge. At a time when market competition is fierce, the difficulty for enterprises to survive suddenly increases from time to time.
On the other hand, the single operation also limits the large-scale development of Easy and International. Even if selling disposable plastic fast food boxes is a business with a stable income, when the resources of the single operation are too concentrated, it will be highly dependent on this industry market. If there is turmoil in the industry or if the competitiveness of the company's own products is weak, it will face greater business risks.
Standing at the moment, for the disposable lunch box industry, environmental protection policy is an important proposition that needs to be solved now.
Environmental protection policies are “suspended”, but it is difficult for film and television e-commerce to become “living water”
In recent years, as China's environmental protection policies have become more stringent, plastic pollution prevention and control has been further strengthened. The National Development and Reform Commission issued a new version of the Plastic Restriction Order “Opinions on Further Strengthening the Control of Plastic Pollution” in 2020, which restricts the use of plastic products in more industries and cities, while vigorously promoting the use of alternatives such as paper bags. In terms of food packaging, opinions are divided into three steps to gradually expand the restricted area for non-degradable plastic products such as plastic straws, plastic lunch boxes, and plastic bags.
At the same time, the Ministry of Commerce and the National Development and Reform Commission issued management measures on the use and reporting of disposable plastic products by commercial sector operators in May 2023 (effective in June 2023) to encourage a reduction in the use of disposable plastic products and scientifically promote the application of recyclable and degradable alternative products.
Driven by the dual carbon context and plastic ban policy, it is imperative that degradable plastics replace traditional plastics, and most food packaging boxes made of degradable materials have also become part of the restaurant industry's choices in recent years, impacting traditional plastic lunch boxes. Among the risk factors, the company also emphasized that “we are facing pressure from China's increasingly stringent environmental laws and regulations and may be adversely affected by changes in environmental laws, regulations and policies.”
It is easy to see that at a time when regulations on disposable plastic fast food boxes are gradually being tightened and consumers' awareness of environmentally friendly products is increasing, the search for diverse growth points and transformation based on the original business has become the next crossroads in the development of Easy and International. However, the company's choice to cross borders into the film, television, and e-commerce fields can be said to have nothing to do with its main business.
In April 2022, Yi International completed the acquisition of all shares of Yi Zhen Film and Television for 72 million yuan. The latter held 10% of the interest in the movie “Ingrid”. Currently, the film project has been submitted to the National Film Administration for review and is awaiting the issuance of a license to screen the film. Furthermore, the filming of the film project has been completed, post-production work is ongoing, and no revenue has yet been generated.
In June of the same year, Yi International completed the acquisition of Youpianhui Enterprise and entered the e-commerce industry, and set up the “Easy World” application platform in July. The platform is an online shopping platform that provides products such as necessities of life, beauty and skin care products, household appliances, and domestic specialty agricultural products. Recently, “Easy World” established its own brand “Yi He Zhen Xuan” and began advertising on this platform to increase revenue sources. Judging from the platform's positioning, it mainly targets agricultural and lifestyle e-commerce to sell and promote to middle-aged and elderly users.
In terms of scale, in 2022, the company's e-commerce business generated revenue of only 3,207 million yuan, accounting for 1.1% of total revenue. The “Easy World” platform had only 35,000 registered users. If compared with industry giants, Easy International's business is too small, and its layout is relatively weak and single. Future development may require continuous investment in purchasing volume, promotion, and category expansion.
Overall, the main business of Easy International Holdings may be affected by the “plastic restriction order”. The prospects for the film and television business are uncertain. The e-commerce business has just started, and its profit model is still being explored. Therefore, in the face of their “turning point dreams” and future growth, investors still need to maintain a cautious attitude.