Green Future Food Hydrocolloid Marine Science Company Limited Announces Details of Proposed Listing on the Main Board of The Stock Exchange of Hong Kong Limited
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Offering Details
The Group intends to offer 200,000,000 shares (subject to over-allotment option), 180,000,000 of which for international offering (subject to re-allocation and over-allotment option) and 20,000,000 for the Hong Kong public offering (subject to re-allocation). The indicative offer price range is between HK$1.16 and HK$1.74 per offer share. After deducting underwriting fees and estimated expenses in connection with the share offer, and assuming the over-allotment option is not exercised and the offer price is fixed at HK$1.45 per share, being the mid-point of the indicative offer price range, the net proceeds are estimated at approximately HK$240.0 million.
The Hong Kong public offering commenced at 9:00 a.m. on 30 September 2019 (Monday) and will end at 12 noon on 9 October 2019 (Wednesday). The final offer price and allotment results are expected to be announced on 16 October 2019 (Wednesday). Dealing of the shares of the Company is expected to commence on the Main Board of SEHK on 17 October 2019 (Thursday) under the stock code 01084 and in board lots of 2,000 shares each.
Essence Corporate Finance (Hong Kong) Limited is the Sole Sponsor and Essence International Securities (Hong Kong) Limited is the Sole Bookrunner and Sole Lead Manager of the Share Offer.
Investment Highlights
Leading seaweed-based hydrocolloid producer in the PRC and worldwide
The Group's leadership in the seaweed-based hydrocolloid industry is reflected in its rankings and market shares in the PRC and the international market. In 2018, in terms of sales volume and value, it ranked first among agar-agar producers in the PRC[1] and the world. It has a 31.6% and 33.7% share of the PRC agar-agar market, and a 13.4% and 10.3% share of the global agar-agar market, in terms of sales volume and sales value, respectively. And, among carrageenan producers in the PRC, the Group ranked second[1], with a 22.7% and 27.7% share of the market, in terms of sales volume and sales value, respectively. In the global carrageenan market, the Group held a 9.4% share in terms of sales volume and a 10.4% share in terms of sales value.
The Group has the experience, resources and competitive strengths to capture growth of the PRC and global hydrocolloid markets, thereby enlarging its market share. In 2018, the PRC was the largest exporter of agar-agar in the world, accounting for 41.8% of the global agar-agar market in terms of export volume, and also one of the leading exporters of carrageenan.
Strong product research and development capability
The Group has been constantly improving its products and product formulas to help boost market share and also develop new products and formulas that agree with industry trends and customer demand. The Group has set up a product research centre in Xiamen, Fujian Province, the PRC, and has research and development technicians - 57 in all as at 31 March 2019 - based at its production plants. The Group focuses product research and development efforts on improving processing technology and testing and modifying the composition of blended products to optimise product quality and functions.
Armed with strong product research and development capability, the Group has participated in drawing up national standards for agar-agar and carrageenan products. The Group is also keen in exploring cooperation opportunities with renowned universities and institutions in the PRC to help it advance production and processing technologies. The Group has signed various cooperative agreements on joint research projects with universities and institutions in the PRC. For example, in September 2018, the Ministry of Agricultural and Rural Affairs of the PRC included the research project for processing technology of red edible seaweed jointly initiated by members of the Group and Jimei University on the country's list of state agricultural product processing technology research and development centres.
Offers a wide range of seaweed- and plant-based hydrocolloid products backed by strong product research and development capability
The Group offers a wide range of seaweed- and plant-based hydrocolloid products including agar-agar, carrageenan and konjac products, and their respective blended products. As at 31 March 2019, the Group offered 22 types of agar-agar products and 43 types of carrageenan products of different specifications for different food and non-food applications, plus 19 types of konjac products and more than 302 types of blended products to customers.
The Group plans to continue to invest in developing new products so as to set itself apart from its major rivals. In addition, the Group owns patented technologies in the PRC for developing and improving processing techniques of agar-agar and carrageenan and extraction of carrageenan, enabling it to develop hydrocolloid products and enhance the features and benefits of the products for different applications.
Interchangeable production lines for different hydrocolloid products
As at 31 December 2018, the Group had production facilities set up at four locations in Fujian Province and Hubei Province, the PRC. For the year ended 31 December 2018, their total annual design production capacity was 18,700 tonnes, and certain of the Group's production facilities can be used interchangeably for putting out agar-agar products and carrageenan products by adjusting certain steps in the production process. The production lines at Workshop No. 2 of Greenfresh (Fujian) Production Plant and Workshop No. 1 of Lvqi (Fujian) Production Plant can be used for producing agar-agar and carrageenan products after adjusting and cleansing relevant equipment requiring a maximum of two days to complete.
Dedicated quality management system encompasses procurement to all parts of the production process
The Group exercises quality control on all critical production processes, in particular, the raw material procurement process, inspection of raw materials and finished products and trace metal detection. In addition, it has adopted hygiene and safety standards pinpointing specific production facilities, which employees are required to comply with during production. The Group has been BRC, HALAL, KOSHER, FSSC 22000, HACCP, ISO 9001 and ISO 22000 certified.
As at 31 March 2019, the Group had a quality control team of 52 staff. Members of the team are based at the Group's production facilities and also consigned to seaweed suppliers' facilities to ensure procurement and production processes match the Group's quality standards. The Group has established a procurement system to ensure the dried seaweed sourced from its suppliers meets its production requirements and are purchased at competitive prices. The Group adopts relevant industry standards (including ISO 9001 and ISO 22000) in production to make sure all of its products are made in compliance with applicable industry standards.
Solid customer base
The Group has well-founded and close business relationships with its major customers and expects business with these customers to continue to grow alongside the increase in types of hydrocolloid products for various food and non-food applications it is able to offer. Among the Group's five largest customers are long-time food production and processing industry players, well-reputed and recognised in their respective business sectors. In 2016, 2017, 2018 and the three months ended 31 March 2019, the five largest customers had on average 6.4 years, 6.6 years, 6.4 years and 7.4 years of business relationship with the Group, respectively. During the same period, more than half of the Group's 10 largest customers were internationally recognised food production and processing companies.
Experienced and visionary management team with proven track record
The Group's Executive Directors, senior managers and key operation personnel all possess extensive operating and industry experiences. Some of them have been with the Group or in related industries for about 20 years. Having in-depth industry knowledge, its senior management and operation team has enabled it to respond promptly to the latest market trends and changing needs and requirements of customers.
Future Growth Strategy
Expand production capacity and improve operational efficiency
The construction of the new plant of the Group for quick-dissolving agar-agar products, refined iota carrageenan products, and konjac gum products, which is adjacent to the Lvqi (Fujian) Production Plant, has been completed. Installation of machineries for the quick-dissolving agar-agar production line was also completed and trial production began in the first quarter of 2019, followed by commercial production during the second quarter of 2019. The iota carrageenan production line has commenced trial production in the beginning of the third quarter of 2019, with commercial production to start at the end of 2019. The production line for konjac gum products will start a trial run in the second quarter of 2020 for commercial production to begin in the third quarter.
PRC: The Group plans to build a new production plant in Longhai City, Zhangzhou City, Fujian Province, the PRC for producing (a) agarose (annual design production capacity of 50 tonnes), (b) agar microspheres (annual design production capacity of 10 tonnes, and (c) agarophyte (annual design production capacity of 200 tonnes). The trial runs of the three production lines will take place in the first quarter of 2020. Also on the drawing board of the Group is another production plant to be located in Zhangzhou City, the PRC, for putting out agar-agar products (annual design production capacity of 1,000 tonnes), for which trial production is expected to begin in the first half of 2022 and commercial production at the end of 2022.
Indonesia: The Group plans to set up a new production plant in Indonesia to produce semi-refined carrageenan (annual design production capacity of 3,000 tonnes), with trial production to start in the second half of 2020 and commercial production by the end of 2020.
Apart from expanding production capacities, the Group plans to improve its processing technologies and raise the level of automation of its production processes, aimed at improving operational efficiency and optimising its cost structure and production efficiency. It also intends to use its advantage in scale to more efficiently source principal raw materials and reduce procurement costs.
To further strengthen product research and development capability and continue to develop products and product formulas pursuant to the industry trends
The product research and development team of the Group will continue to work closely with the production and sales and marketing teams to improve processing techniques, enhance production technology and efficiency as well as develop new products and product formulas that match the latest industry trends and changing customer needs and requirements.
The Group also plans to keep strengthening its product research and development capacity by adopting better defined policies increasing expenditures on product research and development activities. It will push to improve its expertise and technical expertise in relation to product quality, production technology and operational efficiency. It will continue to cooperate with renowned academic institutions In the PRC so as to stay abreast of the latest industry technical knowledge and expertise and nurture talent, in the bid to bolster competitiveness and enlarge its market share.
To expand sales and marketing coverage
The Group plans to increase penetration of the international market, targeting Southeast Asian countries as those markets are densely populated yet do not have access to advanced food production and processing technologies, hence represent significant growth potential for its hydrocolloid products.
Use of Proceeds
Assuming over-allotment option is not exercised and the Offer Price is fixed at HK$1.45 per share (being the mid-point of the indicative range of the Offer Price), the net proceeds from the Share Offer are estimated to be approximately HK$240.0 million, after deduction of underwriting fees and estimated expenses, and will be used as follows:
Purpose (Percentage)
- Construction of a new production plant for agar-agar products in Zhangzhou City, Fujian Province, the PRC, with annual design production capacity of 1,000 tonnes (34.2%)
- Construction of a new production plant in Longhai City, Zhangzhou City, Fujian Province (33.8%)
- Construction of a new production plant in Indonesia with annual design production capacity of 3,000 tonnes of semi-refined carrageenan (11.5%)
- For partial financing of the construction cost of the new production plant adjacent the Lvqi (Fujian) Production Plant (11.0%)
- As general working capital (9.5%)
Total (100.0%)
Financial Performance
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HK$'000 For the Year Ended For the Three Months Ended
31 December 31 March
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2016 2017 2018 2018 (Unaudited) 2019
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Turnover 535,086 661,568 997,056 176,736 190,284
Gross profit 118,368 175,947 266,975 46,578 50,362
Gross profit margin (%)
22.1 26.6 26.8 26.4 26.5
Adjusted net profit[1]
53,395 98,436[1]126,506[1] 19,581[1] 19,383[1]
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[1] Excluding one-off listing expenses and share-based payment expensesAfter listing, the Group intends to adopt in the future a general annual dividend policy of declaring and paying dividends of no less than 20% of its distributable net profit attributable to its equity shareholders.
Management Photo http://bit.ly/2m7YpgC
From left to right:
Mr. GUO Dongxu, Executive Director, Vice Chairman, and Vice President
Mr. CHAN Kam Chung, Executive Director, Chairman and Chief Executive Officer
Mr. CHAN Shui Yip, Executive Director, Vice Chairman, and Vice President
Mr. SO Chi Man, Chief Financial Officer and Company Secretary
About Green Future Food Hydrocolloid Marine Science Company Limited
Green Future Food Hydrocolloid Marine Science Company Limited is a leading seaweed-based and plant-based hydrocolloid producer in the PRC. Its hydrocolloid products include agar-agar, carrageenan and konjac products, and their respective blended products, all derived from natural sources like seaweed or other plants. Seaweed- and plant-based hydrocolloid products are commonly used in the food production and processing industry. In 2018, in terms of sales volume and value, the Group ranked first among all agar-agar producers in the PRC and the world and placed second among carrageenan producers in the PRC.
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