Recently, "more than 30% of postgraduates on Henan Zhongyan assembly line" has aroused heated discussion. While netizens lamented the good welfare treatment of tobacco enterprises, many investors noticed that manufacturers providing packaging paper for tobacco enterprises should also be ready to go public.

Recently, Weili Holding Co., Ltd. (hereinafter referred to as Weili holding) submitted a prospectus to the Hong Kong stock exchange to be listed on the Hong Kong main board. However, the total amount of fund-raising has not been disclosed. According to the disclosure of the application draft of the prospectus, the fund-raising plan is used to build factories and purchase machinery and equipment.

What company is Weili holding?

According to the prospectus, on April 21, 2021, Weili Holding Co., Ltd. was incorporated in the Cayman Islands. It is a cigarette packaging paper manufacturer, mainly providing products to cigarette packaging manufacturers operating in various provinces of China (mainly including Hubei and Henan). The products sold by the company are used to manufacture cigarette packaging of well-known tobacco brands in China. According to the industry report issued by Ipsos, a market research institution, Weili holdings was rated as the largest cigarette packaging paper manufacturer in Hubei Province in 2020 (in terms of sales value), accounting for about 14.9% of the market share in Hubei Province.

From the perspective of equity structure, Weili holdings indirectly wholly controls Hubei Qiangqiang Packaging Industry Co., Ltd. (hereinafter referred to as Hubei Qiangqiang packaging) through Shengxi Global Co., Ltd. (hereinafter referred to as Shengxi global) and Hong Kong Weili Holdings Co., Ltd. (hereinafter referred to as Hong Kong Weili). It is worth noting that Shengxi global and Hong Kong Weili were established not long ago. They were just established on March 29 and April 30, 2021 respectively, with registered capital of US $1 and HK $1 respectively.

According to tianyancha app, Hubei Qiangqiang Packaging Industry Co., Ltd. was established in 2011. After capital increase and share expansion in 2017, the registered capital reached 60 million yuan.

The top shareholders of Weili holdings are also senior executives of Hubei powerful packaging. The prospectus disclosed that before listing, Chen Weizhuang, chairman of the board of directors and executive director of the company, held 56.5% of the shares through Chengyi; Yu Tianbing, chief executive officer and executive director, holds 16% of shares through Yongning; Four non-executive directors, including Hu Haoran, hold 24.5% of the shares through Qidong. According to tianyancha information, the chairman of Hubei Qiangqiang packaging is Chen Weizhuang, Yu Tianbing is the director and general manager, and Hu Haoran is the director.

Weili holding company structure source: prospectus application draft

Weili holding company structure source: prospectus application draft

According to senior management information, Chen Weizhuang, 59, has only a secondary school education, but has more than 25 years of enterprise management experience in China's paper industry and other industries. From 1993 to 1998, he served as deputy general manager of a paper mill in Hunan Province. Since then, he has served as an executive director of Shenzhen fuhualong Industrial Co., Ltd. for ten years and engaged in real estate development and management in Fuyang, Anhui Province. In May 2017, he joined Hubei Qiangqiang packaging as a director, responsible for the overall management and business strategy formulation of the company.

Yu Tianbing entered Hubei earlier than Chen Weizhuang. In January 2017, Yu Tianbing joined Hubei powerful packaging and served as general manager. Previously, he worked in Hubei Jinye Yuyang Chemical Fiber Co., Ltd., a national designated manufacturer of polypropylene tow and filter rod for tobacco, responsible for enterprise management, and served as deputy general manager of Hubei golden Three Gorges Printing Co., Ltd., a cigarette packaging manufacturer.

Do you make money selling cigarette wrapping paper?

As we all know, the price of a pack of cigarettes far exceeds the production cost. According to the analysis report on production and marketing demand and investment forecast of China's tobacco products industry from 2013 to 2017 released by the forward looking Industry Research Institute, the gross profit margin of China's tobacco products industry remained at a high level of more than 57% from 2001 to 2012, and the gross profit margin of the industry reached 74.06% by 2012.

In an interview with Zhongxin Jingwei client, Dong Dengxin, director of the Institute of Finance and securities of Wuhan University of science and technology, said that the tobacco industry is a special industry strictly controlled and controlled by the state. In the A-share market, it is impossible for tobacco enterprises to be listed. HKEx is more inclusive and can accept relevant industries in this regard. However, the huge profits of the tobacco industry are reflected in processing“ Tobacco brands have higher added value only when they are produced. For the tobacco packaging industry, there is basically no much profit space. "

From the financial data, in 2018, 2019, 2020 and the first quarter of 2021, the revenue of Weili holdings was RMB 234 million, RMB 313 million, RMB 318 million and RMB 102 million respectively, and the corresponding net profit was RMB 31.327 million, RMB 34.297 million, RMB 42.171 million and RMB 15.655 million respectively. From 2018 to 2020, the gross profit margin of Weili holdings was 23.2%, 21.0% and 22.0% respectively. In the first quarter of 2021, the company's gross profit margin was 24.1%, a slight increase.

In terms of specific business, the revenue of Weili holdings mainly comes from the sales of cigarette packaging paper, including transfer paper, composite paper and frame paper. In addition, the company also provides smaller cigarette packaging paper processing services for cigarette packaging manufacturers. Among them, from 2018 to 2020, the main revenue transfer paper contributed revenue of 189 million yuan, 246 million yuan and 253 million yuan respectively, accounting for 80.6%, 78.6% and 79.6% respectively. In the same period, the income of composite paper accounted for less than 20%, while the income of frame paper accounted for less than 1% in the three years.

Revenue sources of various businesses of Weili Holdings: prospectus declaration draft

Revenue sources of various businesses of Weili Holdings: prospectus declaration draft

Weili holdings, located in the upstream of the tobacco industry chain, is highly dependent on the top five customers. In 2018, 2019, 2020 and the first quarter of 2021, Weili holdings generated sales of 22, 37, 40 and 27 customers respectively. During the reporting period, the percentages of the company's top five customers in total revenue were about 87.6%, 62.7%, 68.6% and 80.6% respectively.

For how to expand new customers and maintain old customers, Weili Holdings said that it generally determines bidding opportunities by regularly monitoring the bidding announcements issued by cigarette packaging manufacturers on various bidding platforms; The company's marketing department will also carry out marketing promotion activities“ Customers usually confirm their employment by signing a framework sales agreement with us. The contract period of our framework sales agreement is generally one to two years. During the contract period, customers can place purchase orders with us. After the expiration of the framework sales agreement, the customer can negotiate with us and renegotiate the price. "

Weili holdings admitted, "there is no guarantee that our main customers will continue to place purchase orders with the group in the future." It also mentioned in the risk factors that "if customers no longer place purchase orders with the group, reduce the amount of their purchase orders with us, refuse to renew the framework sales agreement with us or require more favorable terms and conditions, our business, operating performance, financial status and future prospects may be adversely affected."

In terms of raw material supply, Weili Holdings said that the main factors affecting the purchase price of raw materials include market supply and demand, government policies and market competition, many of which are not controlled by the company.

Fierce competition in cigarette packaging paper industry

According to the Ipsos industry report quoted in the prospectus, China's cigarette packaging paper manufacturing industry is decentralized. More than 200 cigarette packaging paper manufacturers participate in the competition in the market. In 2020, in terms of sales value, the top five manufacturers accounted for about 12.6% of the total market share. On the other hand, Hubei cigarette packaging paper manufacturing industry as a whole shows a centralized trend. In terms of sales value, the five major manufacturers accounted for about 46.8% of the total market share of Hubei Province in 2020.

In addition, the global awareness of smoking related health problems is becoming more and more common, or it may affect the demand and sales of cigarettes. In addition, more and more smokers turn to e-cigarettes. As a manufacturer of cigarette packaging paper, how Weili holdings should maintain its business in the future is also an urgent problem to be considered.

What is more noteworthy is that in addition to the original cigarette packaging paper manufacturing enterprises, many raw material suppliers or tobacco brands also began to produce cigarette packaging paper. Weili Holdings said that if any customers expand their business and engage in upstream expansion to manufacture cigarette packaging paper, such customers may stop placing orders with the company or significantly reduce the order amount, and the financial status, operating performance and future prospects of Weili holdings may be materially and adversely affected.

Xu Xiongjun, a strategic positioning expert and founder of Shanghai Jiude positioning consulting company, said in an interview with Zhongxin Jingwei client that as a vertical cigarette packaging enterprise, Weili holdings is a B to B enterprise, and technically has no high threshold core competitiveness. Therefore, the safety, stability and cost performance of suppliers and customers are very important.