PRC’s Largest Pearlescent Pigment Producer Global New Material International Holdings Limited Announces Details of Proposed Listing on the Main Board of HKEX
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Highlights
— The Group is the largest pearlescent pigment producer in the PRC, with a market share of 11.0%. It is also the fourth largest pearlescent pigment producer in the global market with a market share of 3.0%*.
— The Group possesses a comprehensive portfolio of pearlescent pigment products for use in diverse applications and industries, including industrial coatings, plastics, textiles and leather, cosmetics and automotive coatings. The products are sold within the PRC and more than 30 other countries and territories in Asia, Europe, Africa and South America, under the brand “Chesir Pearl” .
— Strong R&D capabilities: its R&D efforts are led by a team of professionals including a pioneer and professor in the PRC pearlescent pigment industry, with 26 patents already registered in the PRC.
— High product quality: the Group’s synthetic mica powder products are in compliance with the Japanese Standards of Quasi-Drug Ingredients. Its cosmetic-grade pearlescent pigment products are well recognised in the international market. Its automotive pearlescent pigment products have passed the IATF 16949:2016 certification, which is the general standard of the international automotive industry.
— Proven track record: the Group’s revenue grew at a CAGR of 33.7% from FY2018 to FY2020 and reached RMB569.1 million in FY2020. Gross profit margin was 49.9% in FY2020. Profit grew to RMB152.9 million in FY2020 at a CAGR of 37.1% from FY2018 to FY2020. Net profit margin reached 26.9%.
— In the future, the Group will expand its production capacity for pearlescent pigment products in order to fully grasp the huge market opportunities in the global and PRC pearlescent pigment markets.
— Introduced two cornerstone investors: Shanghai Huijin Asset Management Co., Ltd. and YBN Investments Limited who have agreed to invest RMB32.0 million (equivalent to HK$38.0 million) and HK$50.0 million respectively, representing the total investment amount of HK$88.0 million from the Cornerstone Investors
Offering Details
Global New Material plans to offer an aggregate of 290,674,000 shares (“Offer Share(s)”) (subject to over-allotment option), of which 261,606,000 shares will be for International Offering (subject to re-allocation and over-allotment option), and 29,068,000 shares will be for Hong Kong Public Offering (subject to re-allocation). The indicative offer price range is between HK$3.52 and HK$4.22 per Offer Share. Assuming that the over-allotment option is not exercised and the Offer Price is HK$3.87 per share (being the mid-point of the indicative offer price range), it is estimated that the net proceeds from the offer (after deducting underwriting fees and commissions and estimated expenses) will be approximately HK$1,052.9 million.
The Hong Kong Public Offering will commence on 30 June 2021 (tomorrow, Wednesday) and will end at 12:00 noon on 6 July 2021 (Tuesday). The final Offer Price and allotment results will be announced on or before 15 July 2021 (Thursday). Trading of Global New Material’s shares will commence on the Main Board of HKEX on 16 July 2021 (Friday), under the stock code of 6616. Shares will be traded in board lots of 1,000 shares each.
Essence Corporate Finance (Hong Kong) Limited is the Sole Sponsor of the listing, and Essence International Securities (Hong Kong) Limited is the Sole Global Coordinator, Joint Bookrunner and Joint Lead Manager.
Cornerstone Investors
The Group has entered into Cornerstone Investment Agreements with two investors, namely Shanghai Huijin Asset Management Co., Ltd (“Shanghai Huijin”) and YBN Investments Limited (“YBN Investments”) (together, the “Cornerstone Investors”). Following the Listing, Shanghai Huijin No. 3 Fund and YBN Investments will hold the International Offer Shares issued and allotted to Shanghai Huijin and YBN Investments, respectively. Assuming that the Offer Price is HK$3.87 per Share (being the mid-point of the indicative range of the Offer Price), the total cornerstone investments by the Cornerstone Investors shall amount to an aggregate of HK$88.0 million, for the subscription of 22,495,000 International Offer Shares in total.
Shanghai Huijin No. 3 Fund will hold the International Offer Shares issued and allotted to Shanghai Huijin following the Listing. Shanghai Huijin No. 3 Fund is an investment fund in the PRC and managed by Shanghai Huijin. Founded by Ms. JU Wei, the principal business of Shanghai Huijin includes asset management and investment management, with assets under management exceeding RMB300 million. According to the Cornerstone Investment Agreements and assuming that the Offer Price is HK$3.87 per Share (being the mid-point of the indicative range of the Offer Price), Shanghai Huijin has agreed to invest RMB32.0 million (equivalent to HK$38.0 million) for the subscription of 9,576,000 International Offer Shares, representing 3.29% of the initial number of the Offer Shares (without taking into consideration any Shares which may be issued upon the exercise of the Over-allotment Option and any option that may be granted under the Post-IPO Share Option Scheme).
YBN Investments is a wholly-owned subsidiary of YBN International Holdings Limited, a company controlled by YBN Holdings Limited which is owned as to 46.75% by CITIC International Assets Management Limited. According to the Cornerstone Investment Agreements and assuming that the Offer Price is HK$3.87 per Share (being the mid-point of the indicative range of the Offer Price), YBN Investments has agreed to invest HK$50.0 million for the subscription of 12,919,000 International Offer Shares, representing 4.44% of the initial number of the Offer Shares (without taking into consideration any Shares which may be issued upon the exercise of the Over-allotment Option and any option that may be granted under the Post-IPO Share Option Scheme).
Investment Highlights
The largest pearlescent pigment manufacturer in the PRC; leveraging the advantages of being the industry leader to fully grasp the huge market opportunities in the PRC and across the world
The Group is the largest pearlescent pigment producer in the PRC market, with a market share of 11.0%*. In the global market, the Group is the fourth largest pearlescent pigment producer, with a market share of 3.0%*. The Group’s principle products include natural mica-based and synthetic mica-based pearlescent pigment products. Pearlescent pigment products are generally used as in a wide range of industrial and non-industrial applications. The synthetic mica-based pearlescent pigment market is in a state of rapid development and accounted for 15.8% of the PRC pearlescent pigment market in 2020, amounting to RMB4,843.9 million*.
The Group produces and sells a comprehensive portfolio of pearlescent pigment products for use in diverse applications and industries, including industrial coatings, plastics, textiles and leather, cosmetics and automotive coatings. Its products are sold within the PRC and more than 30 other countries and territories in Asia, Europe, Africa and South America under its brand of “Chesir Pearl” .
As a new type of functional material, the market growth of pearlescent pigment products is primarily driven by the gradual replacement of, and as an alternative to, traditional organic pigment and metallic pigment products. In addition, pearlescent pigment products have remarkable chemical and optical properties, such as temperature resistance, weather resistance, lightfastness, water resistance and colour fastness, hence the use of pearlescent pigment products has been expanded to other innovative downstream applications, and has been generally accepted by customers across different industries.
The Group has been persistent in its innovation and research efforts in the development of new products and new applications through continuous improvements in its production and processing technology, as well as its production plant and machinery, resulting in rapid business growth. During the three years ended 31 December 2020, the Group continued to expand the production capacity of its Phase 1 Production Plant. Consequently, the Group’s designed annual production capacity of pearlescent pigment products increased from 10,464 tonnes in FY2018 to 13,740 tonnes in FY2020. The designed annual production capacity of synthetic mica powder remained stable during FY2018 and FY2019 at 4,752 tonnes and increased to 9,504 tonnes in FY2020. The continuous increase in scale of production has enabled the Group to achieve economies of scale through increasing its production efficiency and lowering its cost of production while ensuring a stable product quality.
The proprietary production technologies and well-designed production plant and machinery ensured the Group’s product quality
The Group’s proprietary production technologies and the use of a well-designed production plant and industry leading machinery in the production processes are key to ensuring its product quality and improving its production efficiency. The Group focuses on refining and improving its production processes, developing corresponding machinery and continuing to improve the automation level of its production process.
The Group’s synthetic mica powder products are certified as having a free fluorine level of less than 10 ppm, pursuant to the Japanese Standards of Quasi-Drug Ingredients and are thus safe for use in cosmetics. The Group’s cosmetic-grade pearlescent pigment products can be used in the production of high-end cosmetics. In addition, the Group’s automotive pearlescent pigment products have passed the IATF 16949:2016 certification, which is the general standard of the international automotive industry. Its automotive pearlescent pigment products can withstand harsh environmental conditions and UV exposure and have the characteristics of weather resistance, light stability, chemical inertness and thermal stability.
The Group has implemented a comprehensive quality control system throughout its entire production process. Chesir Pearl has been accredited with ISO 9001:2015 Quality Management System certification, which involves annual reviews of its production process and the implementation of quality management systems. Chesir Pearl has also been accredited with the GB/T 45001-2020/ISO 45001:2018 occupational health and safety management system and the ISO14001 environmental management system. Chesir Pearl has also obtained the REACH certification for products sold to the EU in compliance with the REACH standards for chemicals entering the EU and KKDIK Pre-Registration Certification for products sold to Turkey.
Led by pioneer professors of the PRC pearlescent pigment industry, the Group possesses strong research and development (R&D) capabilities
The Group has a strong R&D team that focuses on developing new products and new applications, improving its production and processing technology, enhancing its production efficiency and upgrading its production plant and machinery. As of 31 December 2020, the Group had 40 R&D team members in its R&D centre, of which more than 20 are holders of bachelor’s degrees or above, including five master’s degree holders, four doctorate degree holders and three professors. The Group’s research and development efforts are currently led by Professor Fu Jianshen, its chief engineer and a pioneer of the pearlescent pigment industry in the PRC. Members of the Group’s R&D team have extensive experience in the pearlescent pigment and synthetic mica industries.
The Group is also collaborating with several universities and institutions in the PRC on various research projects, including cooperating with Guangxi Academy of Sciences to establish the National Enterprise Research and Development Technology Center for research on the industrial applications of pearlescent pigment products and synthetic mica. In addition, the Group has also cooperated with Hubei University of Technology to establish the “Chesir Pearlescent New Material Research and Development Center” for the research and development of new products and new applications, improvement and development of new production technology and the upgrading of its production plant and machinery.
As of the Latest Practicable Date^, Chesir Pearl has undertaken eight scientific research projects on a national, provincial and ministerial level in the PRC. It had also registered 26 patents and had submitted 14 patent applications in the PRC. The Group’s R&D efforts are well recognised and it has received a number of awards and accolades. It obtained the accreditation of “National Intellectual Property Advantage Enterprise” in 2017 and “Innovative Technology Exemplary Enterprise” in Guangxi Zhuang Autonomous Region in 2018.
Extensive sales network and experienced management team
An extensive sales network in China enables the Group to reach a broader customer base, thereby establishing its market presence and brand awareness across the country. China is the Group’s primary market, accounting for 94.8% of total revenue in FY2020. The Group has a dedicated sales and marketing team who pay visits to its trading company customers on a regular basis to offer after-sales services and promote its products. The Group has established a strong sales channel across different provinces and cities in China through its trading company customers, and set up sales offices in Chengdu in Sichuan Province, Hangzhou in Zhejiang Province, Zhengzhou in Henan Province, Wuhan in Hubei Province, Guangzhou and Dongguan in Guangdong Province and Shanghai. The Group also has a dedicated overseas sales team responsible for sales to customers in the international market.
The Group’s executive directors and senior management team have over 10 years’ extensive experience in the pearlescent pigment. Under the leadership of Chairman Mr. Su Ertian, its management team is set to promote the Group’s future business development with their industry knowledge, forward-thinking vision, dedication and management experience. In addition to formulating the Group’s business plans and strategies, the management also focuses on delivering high-quality products and continuous technological innovations, as well as fostering a corporate culture that keeps staff motivated and attracts high-calibre staff to the Group, which it considers instrumental to its continued success.
Strategic plan for the future
Fully grasp the huge market opportunities in China and across the world with its leading position in the industry
According to the Frost & Sullivan Report, the size of the global pearlescent pigment market is expected to reach RMB44.6 billion by 2025 at a CAGR of 23.9% from 2021 to 2025, among which synthetic mica-based pearlescent pigment products are expected to account for a market share of 23.6%. The Chinese pearlescent pigment market is also developing quickly and is expected to reach RMB14.2 billion by 2025 at a CAGR of 30.8% from 2021 to 2025, among which the synthetic mica-based pearlescent pigment products market is expected to assume a market share of 32.6%. The Chinese government supports the development of the pearlescent pigment market. Pursuant to the Notice of Increasing Tax Rebate for Specified Products issued by the State Taxation Administration in March 2020, pigments and pigment-based products are listed as export products that enjoy tax rebates at the latest rate of 13.0%. According to the Catalogue for Guiding Industrial Restructuring (2019 Edition) issued by the National Development and Reform Commission in November 2019, manufacturing of organic pigment products that have high light fastness, high weather resistance and high performance is included as one of the encouraged industries and enjoys policy support.
Leveraging its leading position in the pearlescent pigment industry, the Group is determined to increase its market share in the pearlescent pigment and synthetic mica industry, including the expansion of production capacity for pearlescent pigment products.
In fact, the utilisation rate of the Group’s pearlescent pigment production facility reached 98.3% for the year ended 31 December 2020, giving rise to the need for the construction of Phase 2 of the pearlescent pigment production plant, in order to satisfy the increase in demand for pearlescent pigment products. Phase 2 Production Plant will enable an annual designed capacity of 30,000 tonnes and will be used to produce pearlescent pigment products, especially high-end and high-performance products for automotive and cosmetic-grade pearlescent pigment products, etc. The Group targets to complete the first phase of construction with a designed annual production capacity of 6,000 tonnes in the fourth quarter of 2021 The Group believes that the construction of Phase 2 Production Plant will help increase the production capacity of the Group’s pearlescent pigment products, especially high-end pearlescent pigment products, such as automotive and cosmetic grade pearlescent pigment products.
The Group also plans to build the Luzhai Synthetic Mica Plant with a designed annual production capacity of 30,000 tonnes of synthetic mica flakes. As of the Latest Practicable Date^, the Group has commenced the initial preparation works, including project approval and land levelling, with the aim of completing the first stage of construction with a designed annual production capacity of 6,000 tonnes in the second quarter of 2022. The construction of the Luzhai Synthetic Mica Plant will help the Group increase its production capacity of synthetic mica powder. The operation of Phase 2 and the Luzhai Synthetic Mica Plant will bring greater economies of scale to the Group through expanded operations.
Looking ahead, the Group will further strengthen its research and development capabilities, including developing new products and new applications, in particular strengthening the R&D of automotive and cosmetic-grade and weather resistant pearlescent pigment products, to further improve the product structure for its high-end pearlescent products. It is also committed to diversifying applications for its pearlescent pigment products and developing customised pearlescent pigment products to meet the specific needs of various industries and its customers. At the same time, the Group’s R&D team will also strengthen the R&D of the applications of new substrates and the development of more diversified pearlescent pigment products for different downstream applications. In addition, the Group will continue to invest in new technology and new plants and machinery to further improve and optimise its processing and production process, including improving the facilities of its laboratory and research and development centre, in order to enhance its production efficiency. The Group will also further improve the washing process in the pearlescent pigment production process by introducing equipment with fast-switching lines which can reduce the use of water and are environmentally friendly, to cater to industry trends and the changing needs and requirements of customers.
The Group also plans to devote more resources to marketing and advertising initiatives, to enhance its market position through promoting brand awareness. In addition to advertising, the Group also plans to participate in more technology training seminars, technology forums, and domestic and overseas exhibitions to promote its brand.
Use of proceeds
Assuming that the over-allotment option is not exercised and the Offer Price is HK$3.87 per share (being the mid-point of the indicative range of the Offer Price between HK$3.52 and HK$4.22), the Group expects the net proceeds from the Global Offering, net of estimated underwriting fees and other related expenses, will be approximately HK$1,052.9 million, which it plans to use for the following purposes:
Use of proceeds / Approximate percentage / Approximate amount
Partial financing of the construction of Phase 2 Production Plant 55.6% HK$586.4 million
Partial financing of the construction of Luzhai Synthetic Mica Plant 34.1% HK$358.9 million
Increase investment in research and development facilities and testing equipment of its research and development centre 7.1% HK$74.0 million
Sales and marketing activities and building sales network 3.2% HK$33.6 million
Financial Performance
For the Year Ended 31 December
RMB’000 2018 2019 2020 CAGR
Revenue 318,244 440,583 569,113 +33.7%
Gross Profit 146,947 218,277 284,065 +39.0%
Gross Profit Margin (%) 46.2% 49.5% 49.9% N/A
Profit for the year 81,364 107,333 152,861 +37.1%
Net Profit Margin (%) 25.6% 24.4% 26.9% N/A
*According to the Frost & Sullivan Report, based on 2020 revenue
^The Latest Practicable Date refers to 21 June 2021
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