Fook Woo profit up 58% to HK$169mln

The company's unique business model drives rapid growth of revenue and profit.

Fook Woo Group Holdings Limited (“Fook Woo”), the largest waste paper management services provider and producer of recycled tissue paper products in the China region, on Monday announced its first interim results since its listing on the Main Board of the Stock Exchange of Hong Kong.

For the six months ended 30 September 2010, leveraging the momentum in the second half of FY2010, the Group rapidly recovered from the downturn caused by the financial crisis in the same period last year, and performance of all core operations continued to improve.

During the period under review, the rising price of paper, combined with increasing sales volume, boosted revenue to HK$950 million, a jump of 71% from the previous corresponding period. Gross profit also rose by 60% to HK$323 million, while gross margin dropped slightly to 34.0% (FY2010 1H: 36.3%) mainly attributable to the rising cost of raw materials. The Group reported profit attributable to equity holders of HK$169 million, up by 58%. Net margin stood at 17.8% (FY2010 1H: 19.3%). Basic earnings per share were HK8.1 cents.

Mr. Leung Kai Kuen, Chairman of Fook Woo, said, “We are pleased to announce the first set of interim results after our listing in Hong Kong. During the review period, rapid economic development in Mainland China and strong domestic demand together have brought huge opportunities to the Group. We not only actively expanded our waste paper collection business and the sales network for our own-branded recycled tissue paper products, but also fully captured synergies generated from sales of greyboard and provision of confidential materials destruction services (CMDS). All these speak for our satisfactory performance during the period.”

In the first half of FY2011, revenue from the recovered paper segment grew by 89% year-on-year to HK$552 million, contributing 58% of the Group’s total revenue. To meet huge market demand, the Group has expanded its collection channels in Hong Kong and increased the proportion of waste paper collected from household. The Group also opened a waste paper packing station in Tsing Yi in August of this year to strengthen its collection volume. In Mainland China, the strengthening of financial resources and goodwill brought by the successful listing of Fook Woo in Hong Kong has served to attract more printing shops in Northern China to collaborate with the Group. This, in addition to the Group striving to develop the business of collecting waste paper from household in China, significantly broadened its sources of recovered paper.

The tissue paper products segment recorded revenue of HK$372 million, a year-on-year increase of 51%, contributing 39% of the Group’s total revenue. During the period, the Group endeavoured to promote its own-branded recycled tissue paper products, namely Moonily, Smoovie and See-Mia, and expand its sales and distribution network in China by doubling the number of large chain stores carrying its branded products to approximately 300, which are mainly situated in Southern China. The newly established logistics centers in Hunan and Jiangxi also started operation in October. These centers will not only help strengthen the Group’s distribution network in second and third-tier cities to cover smaller retailers, but will also enlarge the Group’s market share in regions beyond Southern China. China’s efforts towards promoting environmental protection and economic development, and the gradual recovery of the global economy from the financial crisis, have created enormous opportunities for the Group’s recovered paper and tissue paper businesses. Riding on its sound financial position, the Group will launch a series of expansion initiatives. For the recovered paper segment, the Group has recently established a new packing station in Kwun Tong in October. It has also confirmed two additional locations for establishing new packing stations which are expected to start operations in the second half of the fiscal year.

For the tissue paper products segment, the Group will actively increase the proportion of high-margin products. While ramping up the production lines for napkin, the Group has also purchased new machines to produce pocket tissues and facial tissues, which have commenced operations in November this year. The Group is planning to further raise production capacity of tissue paper products by enhancing its existing facilities.

On 8 November 2010, the Group announced the lease of a piece of land located in the Tseung Kwan O Industrial Estate with an area of approximately 12,277 square metres from Hong Kong Science and Technology Parks Corporation for the setting up of its new headquarters. This will enable the Group to enlarge its market share of the recycling business, recycled tissue paper business and CMDS. The new headquarters is expected to be in operation in or around October 2013.

Apart from having a famous institutional investor Chow Tai Fook Nominee Ltd. Increasing stake in it, Fook Woo will also be included as a constituent stock of the MSCI Global Standard Index by Morgan Stanley Capital International, which will take effect after the stock market closes on 30 November 2010. Inclusion of Fook Woo as a constituent stock in the Index reflects that its business performance and growth potential are well recognised by the investment community, according to a Fook Woo report.

Mr. Leung concluded, “Looking ahead, the Group will actively expand its business, enhance its waste paper collection capability, capture a greater market share for recycled tissue paper products through its branded products and further develop its waste paper management services and CMDS businesses in China. In addition, we will expand our production capacity and increase investments in R&D, thereby allow us to keep pace with growth in China, in turn, enable the Group to capture enormous opportunities ahead and maximise returns for investors.”