Garments label maker takes offshore routeHealth & Beauty | Kevin Xu 26 Aug 2019
Local apparel label manufacturer Cirtek has filed its initial public offering application to the Hong Kong's stock exchange.
The company produces garment label and trim products including hang tags and woven labels, which contributed to over 50 percent and 15 percent of the total revenue in the last three fiscal years, respectively.
It began the printing operations in Hong Kong in 1992 and set up production facilities in the mainland, Bangladesh and Vietnam and mainly sells the products to apparel manufacturers of the United States and European brands.
The company's revenue grew by 26.24 percent year-on-year to HK$305.02 million in 2017, and further increased by 21.92 percent to HK$371.88 million last year.
Net profit climbed by 36.06 percent year-on-year to HK$25.54 million in 2017, and further increased by 31.95 percent to HK$33.7 million in 2018.
Cirtek ranked fifth in the apparel label and decoration product industry in the mainland last year in terms of revenue with a market share of 2.1 percent, according to a commissioned Frost & Sullivan report.
It expects the market size in the mainland in terms of revenue to increase at a compound annual growth rate of 8.6 percent in the next five years, stimulated by "continuous expansion of the global and domestic apparel market".
However, the garment label and trim product markets in China, Bangladesh and Vietnam mainly consist of small-sized firms and thus "highly fragmented and competitive,'' Cirtek says in the prospectus.
The clothing label producer points out that it faces competition from peers in Southeast Asia, as almost a quarter of the total revenue was attributable to the mainland market in the past three fiscal years.
Amid the relocation trend of mainland clothing manufacturers to Southeast Asian countries such as Vietnam and Bangladesh due to rising labor cost in China, as was identified by the Frost & Sullivan report, garment producers may at the same time choose to place orders for apparel labels from local suppliers.
The share of production value of China's apparel and textile products in the global market declined to 27.7 percent last year, compared to the 39.2 percent in 2014.
Hence, Cirtek says it intends to increase capacity in Bangladesh, where the labor cost is generally only one fifth of that in China.
It will use the net proceeds to build additional plants in Bangladesh and acquire machinery for production facilities in China and Bangladesh.
The company's revenue generated from Bangladesh surged by 45.48 percent to HK$37.35 million last year, and revenue from Vietnam soared by 64.84 percent to HK$19.38 million.
In addition, Cirtek faces the risk of increasing costs of raw materials, including paper, chemical products, and strings and seals. The prospectus shows that raw material costs for printing products accounted for more than 55 percent of the total cost of sales in the last three fiscal years.
The company mainly sources raw materials from mainland suppliers, while statistics from Frost & Sullivan show that the price of paper increased to 4,938.9 yuan (HK$5,608.86) per ton in China last year, the highest level over the past five fiscal years.
Cirtek is also exposed to political and economic uncertainties overseas, including the Sino-US trade war and Brexit.
In particular, the US tariff increase on products imported from China may affect demand from the US for apparel made in China and will further impact the demand for garment labels and trim products, the company says in the prospectus.