Company profile
Junsi Group is a paper product manufacturing and printing service provider with a long history. It provides customers with value-added and customized product engineering services and printing solutions for various products including board games, greeting cards, preschool supplies, and color boxes. It is headquartered in Hong Kong and operates two production bases in Dongguan and Heshan, China, respectively. According to the insight report, in terms of exports in 2018, the company ranked first in China's paper board game products and related products manufacturing market and second in China's paper greeting card manufacturing market.
Sino-Thai views
The company's performance has opportunities to improve: the company's main customers are all leading participants in their respective market segments and have established long-term stable business relationships with the company. According to the insight report, the compound annual growth rate of paper greeting cards (one of the company's main products) in the US (the company's main sales market) is expected to be about 0.5% from 2018 to 2023, an improvement from -0.4% between 2014 and 2018. It is expected that the compound annual growth rates of the US market for board games and preschool education supplies for the company's other major products from 2018 to 2023 will be 0.9% and 4.2%, respectively, higher than paper greeting cards. The company plans to build a new plant at the Heshan plant to improve the operating efficiency of board games and preschool supplies, which have a high profit margin and expected market growth rate, while expanding the customer base of the board games and preschool supplies segment, and ultimately optimizing the product portfolio, thereby increasing profit margins.
In terms of operating performance: In the 2016-2018 fiscal year and ending June 30, 2019, the company's operating revenue was HK$880 million, HK$1.08 billion, HK$1.16 billion and HK$560 million respectively. Revenue from the five major customers accounted for 69.2%, 71.2%, 70.0% and 72.9% of revenue; gross margin was 30.6%, 25.5%, 24.3% and 28.5% respectively. The continued decline in gross margin from 2016 to 2018 was mainly related to changes in the product portfolio and the decline in sales prices of some product units in the first 6 months of 2019. The increase in gross margin was mainly due to the depreciation of the RMB against the Hong Kong dollar and the increase in the tax rebate rate for export products from September 15, 2018, which led to a reduction in Chinese value-added tax payable; net interest rates were 10.1%, 7.3%, 4.4% and 3.7% respectively. The decline in profitability was mainly due to (1) non-recurring listing expenses; (2) non-recurring expenses incurred in 2018, including the cost of rehabilitation work and renovation costs of the Hong Kong office, additional transportation costs associated with the relocation of the production facility from the Dongguan factory to the Heshan plant, and severance payments to employees due to the cessation of production at the Tianjin factory; (3) After a decline in board game purchase orders from a major customer in 2017, orders with low profit margins were accepted to improve capacity utilization; (4) additional administrative expenses were recorded when Tenda Printing was acquired in March 2018; (5) RMB appreciated against the US dollar and the Hong Kong dollar; and (6) the saturated production usage rate limited product portfolio optimization.
In terms of valuation: Based on the global public sale and capitalized issuance of 5.3 billion shares, the company's market value was HK$56-770 million, which is higher than the Hong Kong stock market average. The price-earnings ratio of the company in 2018 was about 11.0-15.1 times, higher than the industry average; the net price-earnings ratio was about 0.96-1.33 times, higher than the industry average. In terms of profitability, ROE and ROA in 2018 were 10.9% and 5.4% respectively, which is at the industry average level. Considering the company's heavy reliance on its major customers and the US market affected by trade frictions between China and the US, the growth in overall industry expectations was not significant, the company's profitability declined, the company plans to improve its product portfolio, and combined with the company's sponsor's past performance, we gave it 58 points and rated it “no subscription.”
Risk warning: (1) the impact of exchange rate fluctuations, (2) reliance on the US market, and (3) reliance on sales from major customers