According to the Euromonitor report, according to the sales value of paper cigarette packaging, the company is the second largest supplier of cigarette packaging in Jiangxi Province, China. The company's market share in Jiangxi Province, China in 2012 was about 17.7%. Jiangxi Province accounted for about 2.4% of China's total cigarette production in 2012. The company is mainly engaged in the design, printing and sale of cigarette packaging in China. According to the Euromonitor report, the company's products include 2 of the 30 major cigarette brands (namely Hongta Mountain and Jin Sheng) and paper cigarette packs from cigarette brand A, and the cigarette brand and Hongta Mountain are two of the four largest cigarette brands with the highest retail sales volume in China in 2011. Of the 16 Chinese provincial tobacco industry companies, 4 were the company's main customers during the historical record period.

We recommend investors speculative purchases.

Company advantage

1) Approved cigarette packaging supply for key Chinese cigarette brands; (2) a management team with rich experience and knowledge in the cigarette packaging industry; (3) has technical knowledge, equipment and product design capabilities; (4) implements a series of quality control measures; (5) provides comprehensive sales and after-sales services.

Industry Overview

China has the largest smoker population in the world, accounting for more than one-third of the global smoker population in 2012. China is also the largest producer of cigarettes, accounting for over 40% of global production in 2012. The total number of smokers in China increased from about 343.3 million in 2008 to about 346.6 million in 2012, and it is estimated that it will continue to increase to around 353.8 million in 2017. In the review period from 2008 to 2017, male smokers accounted for about 95% of the total number of smokers in China. Over the past few years, the Chinese cigarette industry as a whole did not seem to be affected by smoke control regulations, but in the long run, the cigarette industry's production and consumption may eventually decline. The retail sales volume of cigarettes (including taxable and unpaid cigarettes) increased from approximately 2,341 billion cigarettes in 2008 to approximately 2,661 billion in 2012. The compound annual growth rate for the period was about 3.3%, and is expected to continue to increase steadily from approximately 2,661 billion cigarettes in 2012 to approximately 2,918 billion in 2017. The compound annual growth rate for the forecast period is about 1.9%. The Chinese government regulates the tobacco industry in China. This structure was strengthened for the first time through the “Tobacco Monopoly Regulations” issued by the State Council in 1983. The National Tobacco Control Authority is an administrative agency of the government and is responsible for managing the tobacco industry in China. The tobacco industry has been restructured and consolidated in the past ten years. In order to strengthen centralized management of production in highly decentralized industries, a total of 16 provincial tobacco industry companies were established from 2003 to 2004. Their responsibilities include managing Chinese cigarette manufacturers. China is also implementing policies to promote the integration of cigarette manufacturers. For example, shut down small cigarette manufacturers that produce less than 100,000 boxes per year and integrate cigarette manufacturers with an annual production volume of 100,000 to 300,000 boxes. As far as integrating cigarette brands is concerned, the National Tobacco Control Authority published the “List of 100 Cigarette Brands” in 2004, which plans to reduce the number of cigarette brands within two to three years. Furthermore, the National Tobacco Monopoly Administration confirmed a total of 30 key cigarette brands in 2008.

Profitability and financial figures

As of December 31, 2012, revenue rose 1.6% year on year to RMB 183 million, and gross profit fell 5.6 million yuan year on year to RMB 67 million, mainly due to intense competition in the industry on average selling prices of products sold under all brands. Net profit fell 6% year-on-year to RMB 31 million.

Fund-raising purposes

HK$448 million (calculated at the median sale price of HK$0.8 per share) of the proceeds from the capital raising will be used for the following purposes: approximately HK$26.9 million (equivalent to about 60% of the total estimated net proceeds) will be used for the Huizhou production base, of which (i) approximately HK$214 million (equivalent to approximately RMB 170 million) will be used to procure and install additional equipment and equipment for the first phase of Huizhou Student Base production; and (ii) the remaining amount will be reserved for the construction of Huizhou. The second phase of the base is expected to commence construction in the fourth quarter of 2013; approximately HK$45 million (equivalent to estimated income) Approximately 10% of the total net payment amount) is used to expand the company's sales and marketing network to enhance the company's relationships with its current customers and seek business opportunities with potential customers, including establishing sales offices for customers of major provincial Chinese smoke industry companies nearby, recruiting experienced sales personnel, providing training for the company's sales and marketing staff, and actively participating in design, sample production and tendering arranged by current and potential customers of the company, and seeking opportunities The product portfolio diversifies to paper containers other than cigarette packaging (including paper quality for products such as pharmaceuticals, alcohol, tea, or other luxury goods Packaging and paper cups); approximately HK$4.5 million (equivalent to approximately 10% of total estimated net proceeds) to enhance the company's design and development capabilities, including hiring design and development staff, purchasing professional design and development software and hardware, attending national and international design exhibitions, and producing batches of innovative products for the company's main customers; approximately HK$45 million (approximately 10% of total estimated net proceeds) for potential vertical integration (This includes) Expanding the business to cover the production of transfer paper, which is mainly used in cigarette packaging printing One of the raw materials. The ability to produce transfer paper can strategically enhance a company's competitiveness and profitability. Depending on the opportunities available to the company at the time and evaluate costs and potential cooperative effects on the company's existing business, the company may expand to that business through procurement of related equipment and equipment or carry out related business mergers or acquisitions. Factors considered in selecting mergers and acquisitions include its production scale, production quality, past financial performance, reputation within the industry, and production facilities of neighboring companies. At the last practical date, the company had not agreed with any specific counterparty and had not determined any acquisition target; and approximately HK$44 million (equivalent to approximately 10% of the total estimated net proceeds) was used as general working capital.

valuations

According to the offer price of HK$0.70 to 0.90, the price-earnings ratio of Jincai in 2012 was 5.7 to 7.4 times, and the market account ratio was 1.2 to 1.4 times. Due to recent fluctuations in the Hong Kong stock market, and the Federal Reserve will consolidate volume easing policies, it is expected that market liquidity will be greatly affected. Therefore, we are making speculative purchases.

Risk Factors

1) In the historical record period, the number of customers of the company was limited, and the revenue of the top five customers accounted for more than 99% of the company's total revenue. If orders from the company's five major customers are drastically reduced, it may have an adverse effect on the company's operations, operations and financial performance; (2) most customers do not agree to make long-term purchases or bear minimum purchasing responsibilities to the company; (3) the company's business development depends on a number of key management team members, and failure to find suitable candidates to replace them may adversely affect the company's operations; (4) during the recording period, trade receipts and receipts account for most of the company's total capital. If most of the company's trade accounts and bills receivable cannot be settled for any reason, the company may experience depreciation losses; (5) During the record period, the company's purchases from the five major suppliers accounted for more than 68% of the company's total purchases. If they delay or stop supplying raw materials to the company and the company fails to find a replacement supplier in a timely manner, the company's operations may be disrupted.