China Futex Holdings Limited Announces Details of Proposed Listing on GEM of SEHK

Thursday, 21 December 2017, 10:34 HKT/SGT

Offers 300,000,000 Shares; Offer Price Range between HK$0.18 to HK$0.28 per Share

HONG KONG, Dec 21, 2017 - (ACN Newswire) - China Futex Holdings Limited ("China Futex" or the "Group"), one of the top ten manufacturers of circular knitting machines in the PRC, today announced details of its proposed listing on the Growth Enterprise Market ("GEM") of the Stock Exchange of Hong Kong Limited ("SEHK").

Ms. Yuan Yuan, Chairlady, Chief Executive Officer & Executive Director of China Futex Holdings Limited (right) and Mr. Zheng Jiafu, Executive Director (left) introduced the company's proposed listing on the Growth Enterprise Market of the Stock Exchange of Hong Kong.

Highlights
- China Futex is one of the top ten manufacturers of circular knitting machines in the PRC and third among all domestic circular knitting machinery manufacturers and seventh among all domestic, foreign-owned and Sino-foreign joint venture manufacturers in the PRC
- Core products are single circular knitting machines and double circular knitting machines. The Group sells its products under its own brand "FUTEX" directly in the domestic market and overseas including countries along the "One Belt One Road" such as India, Bangladesh, Thailand, Turkey, Vietnam and Egypt and others, such as Korea. It also manufactures circular knitting machines for customers on OEM basis, evidencing the extensive coverage of its sales networks in the PRC and overseas
- The Group places strong emphasis on quality control and has set up a quality control team. Its quality integrated management system is well-recognized and has earned international certifications and awards
- With strong R&D capability and investing continuously in technological innovation, the Group holds one invention patent and 15 utility model patents and has filed application for six utility model patents
- To grasp the enormous opportunities in the PRC, Southeast Asia and other Asian markets, the Group shall push to boost its growth momentum by enlarging its customer base in overseas markets, expanding production capacity and upstream production capabilities, enhancing customer loyalty and brand awareness and also its research and development capabilities, in its strive to become the leading circular knitting machinery manufacturer in the industry

Offer Details
China Futex plans to offer a total of 300,000,000 Shares, of which 90%, or 270,000,000 Shares (subject to reallocation), are for Placing ("Placing"); and the remaining 10% or 30,000,000 Shares (subject to reallocation) are for Hong Kong Public Offering ("Public Offering"). The indicative Offer Price range is between HK$0.18 and HK$0.28 per share.

The Public Offering will commence from 9:00 a.m. on 20 December 2017 (Wednesday) and end at 12:00 noon on 27 December 2017 (Wednesday). The final Offer Price and allocation results are expected to be announced on 3 January 2018 (Wednesday). Dealing of the Shares on GEM of SEHK is expected to commence on 4 January 2018 (Thursday) under the stock code 8506 and in board lots of 12,000 Shares each.

Essence Corporate Finance (Hong Kong) Limited is the Sole Sponsor of the listing, while Essence International Securities (Hong Kong) Limited is the Sole Bookrunner, and Essence International Securities (Hong Kong) Limited and SBI China Capital Financial Services Limited are the Joint Lead Managers.

Investment Highlights
Established brand recognition and proven quality control system
Since it was founded in 2004, China Futex has focused on research and development, and manufacturing and sale of circular knitting machines. Its production base that spans close to 10,000 sq. m. is in Longhai City, Zhangzhou City, Fujian Province, the PRC. According to the Frost & Sullivan report, in terms of sales value of circular knitting machines in 2016, the Group is one of the top ten manufacturers of circular knitting machines in the PRC, and third among all domestic circular knitting machinery manufacturers and seventh among all domestic, foreign-owned and Sino-foreign joint venture manufacturers in the PRC.

As an industry leader, the Group places major emphasis on quality control and has set up a dedicated quality control team. It has compiled and uses a manufacturing process checklist which states all the quality control procedures and standards applicable to from quality of raw materials to maintenance of production equipment and machineries as well as on finished goods, to ensure its products meet customers' requirements. It has also set up a quality control department to help with boosting efficiency and reliability of quality control measures. Moreover, the Group's quality integrated management system has earned wide international recognitions including ISO9001 certification, the CE Mark, High and New Technology Enterprise Certification in Fujian and China's Famous Brand, testifying to the Group's strong brand reputation.

Strong research and development capabilities and continuous technological innovation
To expand its market and maintain competitiveness, the Group has been relentless in directing resources into technological innovation. Since 2009, the Group's own research and development department led by Executive Director Mr. Zheng Jiafu has pushed forward with developing new products and technologies, upgrading and improving products and optimizing production technologies in use.

At present, the Group owns 15 utility model patents and one invention patent, including one utility model patent and one invention patent credit to its "Double Loop Transfer Rib Computerized Jacquard Knitting Machine", which sales volume and average selling price had kept climbing during the track record period. Furthermore, the Group is applying for six utility model patents.

Extensive sales network coverage in China and overseas markets
The Group has an extensive sales network, covering Asia, Eastern Europe and Africa. As more and more textile manufacturers are shifting their production bases to Southeast Asia and other Asian countries such as India and Bangladesh, the circular knitting machines exported from the PRC to those countries are expected to keep increasing. With its products boasting high quality and functionality, plus having close business relationships with trading company clients, the Group will gradually take its "FUTEX" brand to more overseas markets such as India, Bangladesh, Thailand, Korea, Turkey and Vietnam.

The Group established Zhangzhou Fukai Trading Co., Ltd ("Zhangzhou Fukai") in 2016 which sells its circular knitting machines directly to overseas markets. The Group also actively takes part in domestic and international industry exhibitions, visits customers and promotes its products using online platforms. During the track record period, the Group's customer base had grown fast and notably and direct sales channels were opened in domestic markets, such as Shaoxing, Hangzhou, Jiujiang, Shenzhen, etc., and overseas markets, such as India, Bangladesh and Egypt, bringing more balanced revenue contributions from different regions to the Group.

To capture the strong domestic demand and enormous opportunities the One Belt One Road initiative presents
In recent years, the PRC garment industry has been undergoing an upgrade, with textile manufacturers shifting their focus to producing higher value-added garment products. The PRC government is also putting weight behind development of the textile machinery manufacturing industry and encouraging export. According to the Frost & Sullivan Report, the annual total sales value of circular knitting machinery made in the PRC is expected to grow between 2016 and 2021 at a CARG of 4.4% to RMB4,280 million, and export sales of circular knitting machinery made in the PRC will be growing even faster at a CAGR of 11.6%, reflecting the increasing demand for advanced circular knitting machines around the world.

Moreover, China officially announced her "One Belt One Road" in March 2015 with the aim of promoting trade and economic activities between the country and more than 50 nations in Central Asia and Southeast Asia. The policy making it more convenient for foreign customers and Chinese suppliers to communicate, transport products and settling payments has also benefited the textile machinery manufacturing industry. According to the Frost & Sullivan Report, major knitwear manufacturing countries including India, Thailand, Bangladesh and Korea have been importing more and more circular knitting machinery, increasing between 2016 and 2021 at a CAGR higher than that of importing from other countries. Therefore, the Group will strive to capture the strong demand in China and the enormous business opportunities presented by the "One Belt One Road" policy.

Growth Strategy
To capture the huge opportunities in China, Southeast Asia and other Asian markets, China Futex will push to boost its growth momentum by expanding its overseas customer base, production capacity and upstream production output, as well as strengthen customer loyalty, brand awareness and its research and development capabilities, in the strive to become an industry-leading circular knitting machinery manufacturer.

Capitalizing on its established brand recognition and sales network, the Group plans to set up overseas sales offices in India and Bangladesh to help expand its overseas business. It will also promote brand awareness by taking part in industry exhibitions, trade fairs and via online platforms, so as to reinforce its overseas sales network and enlarge market share. Furthermore, to better meet the anticipated increase in sales and production volume, the Group intends to upgrade and enhance its existing equipment and machineries, plus adopt equipment with a higher level of automation, including purchasing one high-end CNC machinery and one lathe, to help expand production capacity. By then, the Group's designed production capacity is expected to increase by 203 units to 957 units. The Group also intends to procure machineries for manufacturing of core components such as Hearts to boost its upstream production capacity, better control the quality its circular knitting machinery and reduce the risk from losing suppliers. By manufacturing Hearts itself, the Group can save about RMB3.8 million in cost per 1,000 units of machinery it produces.

To enhance customer loyalty and brand awareness, the Group plans to keep enhancing its quality control system and provide more training to its staff, and also maintain close communication with customers to seize latest market information and trends, that it may strengthen customer satisfaction. China Futex also intends to work with suppliers in product development and also collaborate strategically with higher education institutions to collect production technology industry information and provide training to its research and development personnel to enhance the Group's research and development capabilities. At the same time, the Group wishes to recruit experienced research and development personnel who can enhance the strengths and expertise of its research and development team, that it may continuously explore latest circular knitting machinery related technologies.

Use of proceeds
Assuming an Offer Price of HK$0.23 per Offer Share, being the mid-point of the indicative Offer Price range, the net proceeds, after deducting underwriting commission and related expenses of Public Offer, are estimated at approximately HK$43.9 million, which will be used as follows:

Usage / Approximately
Expand upstream production capacity: 32.3%
Maintain and strengthen research and development capability: 19.4%
Enhance customer loyalty and brand awareness: 11.2%
Expand production capacity: 10.3%
Expand customer base in overseas markets: 9.1%
Repay existing loan facilities: 9.1%
General working capital: 8.7%

Financial highlight
RMB'000 For the year ended 31 Dec For six months ended 30 Jun
2015 2016 2016 (Unaudited) 2017
Revenue 73,162 94,302 56,811 63,185
Gross profit 22,586 33,420 20,525 22,674
Gross profit margin (%) 30.9 35.4 36.1 35.9
Profit for the year/ period* 11,487 17,002 11,737 12,736
Net profit margin* (%) 15.7 18.0 20.7 20.2
*excluding one-off listing expenses

About China Futex Holdings Limited
Established in 2004, China Futex is engaged in the research and development, manufacturing and sales of both single and double circular knitting machines. It operates a production base covering approximately 10,000 sq. m. at Longhai City, Zhangzhou City in Fujian Province. According to Frost & Sullivan, in terms of the sales value of circular knitting machines, the Group was among the PRC's top 10 circular knitting machine manufacturers in 2016 and ranked third among all domestic manufacturers and seventh among all domestic, foreign-owned and Sino-foreign joint venture manufacturers. Boasting an extensive sales network at home and abroad, the Group also directly sells its products under its own "Futex" brand to domestic and overseas markets covered within China's "One Belt One Road" initiative, including India, Bangladesh, Thailand, Turkey, Vietnam, Egypt and other countries such as Korea. The Group also manufactures circular knitting machines on an OEM basis.

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