Bridal gown maker ready for big day

| Tereza Cai 25 Feb 2019

KNT, China's largest maker of bridesmaid dresses by revenue in 2017, is set to be the first bridal gowns stock on the main board.

The company makes bridesmaid dresses, bridal gowns, and special occasion dresses in Humen town, Dongguan city, Guangdong province.

Brand apparel companies are its major customers, from whom it derives over 95 percent of total revenue. The revenue from its five largest customers accounted for 93.4 percent of total revenue for the first half of the fiscal year 2018, while its single largest customer accounted for 52 percent of its total revenue.

The company warns that it generally does not enter into long-term agreements with customers.

Meanwhile, 94.7 percent of KNT's revenue was generated from its customers in the United States, 2.5 percent from Europe, and 0.9 percent from Australia.

Chairman, chief executive, and executive director, Chong Sik says that KNT's products are not in the first two rounds of tariffs imposed by the US, adding that if the US adds tariffs on its products, customers will bear the extra costs.

He adds that the company does not have a plan to relocate its plant to Southeast Asia for the time being.

Also, the company is exposed to foreign currency risk arising from the currency mismatch between its sales and costs in different currencies.

For the first half of the fiscal year 2018, 81.8 percent of KNT's operating costs and expenses were denominated in currencies other than US dollars, including yuan, Hong Kong dollars, and the pound, while 97.4 percent of its revenue was denominated in US dollars.

For example, the depreciation of yuan in 2016 and 2017 resulted in savings in the cost of sales, which in turn contributed to the increase in gross profit margin. During the same period, savings in administrative expenses due to operations in China, in turn, contributed to the increase in net profit margin.

The business of bridesmaid dresses makes up 62.3 percent of KNT's total revenue for the year ended March 31, 2018, and 33.2 percent of revenue was from special occasion dresses. Bridal gowns accounted for 2.3 percent of total revenue, while the remainder came from selling fabrics and accessories.

Total revenue increased from HK$165.2 million for the fiscal year 2015 to HK$208.4 million for the fiscal year 2017, representing a CAGR of about 12.3 percent with a relatively stable overall gross profit margin.

Net profit doubled to HK$23.83 million for the year ended March 31, 2017.

Excluding non-recurring listing expenses of HK$8.08 million, adjusted net profit for the year ended March 31, 2018, was HK$31.9 million, up 33.84 percent year-on-year.

For the first half of the fiscal year 2018, adjusted net profit increased by 12.02 percent from last year to HK$20.69 million.

KNT intends to use 76 percent of the net proceeds from the global offering to build a new production facility in Guangdong province at a cost of HK$56.5 million. It is to be completed by the fourth quarter of 2020 with operations expected to commence thereafter.

It estimates that usage rates of the existing production facility and new plant will reach 100 percent and over 30 percent, respectively, for the fiscal year 2021. Sales volume is expected to increase from 790,600 units for the financial year 2017 to over 1.2 million units for the financial year 2021. Revenue is expected to increase by 67.9 percent.

About 10 percent of the net proceeds will be used to repay loan, and another 10 percent will be used to set up a sales office in the US. The remaining 4 percent will be used for general corporate purposes.

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