Good News on Listing | Frost & Sullivan Assists Zhongbao New Materials Group Co., Ltd. in Successfully Going Public in Hong Kong (2439.HK)

Zhongbao New Materials Group Co., Ltd. (hereinafter referred to as 'Zhongbao New Materials') successfully listed on March 31, 2023. The company plans to issue 250 million H shares, of which 90% will be international offerings and 10% public offerings, with an additional 15% of rights reserved for over-allotment. The final offering price was HK$1.05 per share, raising approximately HK$1.54 billion in net proceeds.

During the Hong Kong listing process, Frost & Sullivan mainly undertook the following tasks: helping the issuer accurately and objectively understand its positioning in the target market, using objective market data to discover, support, and highlight the issuer's competitive advantages, assisting the issuer, investment banks, and other intermediaries in completing relevant parts of the prospectus (such as the overview, competitive advantages and strategy, industry overview, business, and other important sections), helping the issuer communicate with the Hong Kong Stock Exchange and investors, assisting investors in quickly understanding the market ecosystem and competitive landscape, and providing feedback on various industry-related issues from the Hong Kong Stock Exchange for the issuer.

The company is a leading manufacturer of disposable biodegradable plastics in China;

The company invests in research and development, as well as manufacturing of biodegradable plastic products;

The company's products are under strict quality control;

The company has established stable business relationships with major clients;

The company has an experienced management team.

According to a report by Frost & Sullivan,

Based on the sales revenue of biodegradable plastic products in 2021, the company ranks fourth among all manufacturers of disposable biodegradable plastic products in China, accounting for a market share of 2.6%; it ranks first among all manufacturers of disposable biodegradable plastic products in Northeast China, accounting for a market share of 29.6%.

Based on the sales revenue of biodegradable shopping bags in 2021, the company ranks first among all manufacturers of disposable biodegradable plastics in Northeast China, accounting for a market share of 40.6%.

The chemical structure of degradable plastics undergoes significant changes under special environmental conditions, leading to the loss of some properties. These plastics are classified based on plastic-related standard test methods and varying usage times. According to international standards, degradable plastics refer to those that can degrade in natural or composting environments, such as biodegradable plastics, photodegradable plastics, and hydrolytic plastics. Biodegradable plastics decompose in both aerobic (composting) and anaerobic (landfill) environments. When plastics undergo biodegradation, microorganisms metabolize the plastics into absorbable compounds or humus materials that cause less harm to the environment.

According to the composition of biodegradable plastics, they can be further divided into bio-based biodegradable plastics and fossil-based biodegradable plastics. Bio-based biodegradable plastics include starch-based, PLA, PHA, cellulose-based, etc., while fossil-based biodegradable plastics include PBAT, PBS, PCL, etc.

As the application scope of biodegradable plastics continues to expand, downstream biodegradable plastic products such as disposable biodegradable shopping bags and disposable biodegradable tableware have also developed steadily. China's consumption of biodegradable plastics increased from 151,400 tons in 2016 to 360,100 tons in 2021, with a compound annual growth rate of 18.9%.

Looking ahead, with the growth in market demand for downstream biodegradable plastic products, it is expected that China's consumption of biodegradable plastics will increase significantly, reaching 1.5387 million tons by 2026, with a compound annual growth rate of 33.7% from 2021 to 2026.

From 2016 to 2021, the total sales revenue of disposable biodegradable plastic products in China increased from RMB 33.863 billion to RMB 90.995 billion, with a compound annual growth rate of 21.9%. Disposable biodegradable plastic products mainly include express packaging, disposable tableware, disposable biodegradable shopping bags, and other products (such as agricultural plastic film). From 2016 to 2021, the sales revenue of express packaging, disposable tableware, disposable biodegradable shopping bags, and other disposable biodegradable plastic products increased by 19.5%, 22.1%, 22.2%, and 15.1% respectively on a compound annual basis.

The total sales revenue of disposable biodegradable plastic products in China is expected to reach 4,349.63 billion yuan in 2026, with a compound annual growth rate of 36.7% from 2021 to 2026. From 2021 to 2026, the sales revenue of express packaging, disposable tableware, disposable biodegradable shopping bags, and other disposable biodegradable plastic products in China are expected to grow at compound annual rates of 33.1%, 38.0%, 37.0%, and 21.0%, respectively.

In 2015, with Jilin Province taking the lead in implementing policies to comprehensively ban the production, sale, and use of some non-degradable plastic products, the market for disposable biodegradable plastic products in Northeast China continued to grow during the fiscal years from 2016 to 2021, with a compound annual growth rate higher than the overall growth level of China. From 2016 to 2021, the total sales revenue of disposable biodegradable plastic products in Northeast China increased from RMB 2.784 billion to RMB 7.871 billion, with a compound annual growth rate of 23.1%.

Meanwhile, the sales revenue of express packaging, disposable tableware, disposable biodegradable shopping bags, and other disposable biodegradable plastic products in Northeast China increased by compound annual growth rates of 19.9%, 22.8%, 23.7%, and 16.5%, respectively. The total sales revenue of disposable biodegradable plastic products in Northeast China is expected to reach RMB 367.42 billion in 2026, with a compound annual growth rate of 36.1% from 2021 to 2026.

From 2021 to 2026, the sales revenue of express packaging, disposable tableware, disposable biodegradable shopping bags, and other disposable biodegradable plastic products in Northeast China are expected to grow at compound annual rates of 32.5%, 37.2%, 36.4%, and 21.6%, respectively.

• Government support

Local governments have also successively introduced supplementary policies regarding plastic pollution control. For example, in 2020, relevant government departments in Jilin Province recommended banning the production, sale, and supply of non-compliant plastic products, and gradually phasing out non-degradable express plastic packaging by 2025.

In addition, the 'Administrative Measures for the Use and Reporting of Single-use Plastic Products (Draft for Soliciting Opinions)' issued by the Ministry of Commerce in 2021 encourages the reduction of the use of single-use plastic products and the scientific promotion of the application of recyclable and biodegradable alternatives. Therefore, with the continuous implementation of favorable policies in recent years, the sales volume of single-use biodegradable plastic products has increased.

• Technological development

Advanced and mature technologies play an important role in manufacturing high-quality disposable biodegradable plastic products and reducing the costs and waste in the production process of such products. Therefore, advanced and mature technologies are conducive to the healthy development of the disposable biodegradable plastic product market.

• The demand for biodegradable plastic products is increasing day by day

The application of biodegradable plastic products, such as disposable biodegradable shopping bags, express packaging, and disposable tableware, is easy to recycle and decompose without the need for incineration, making a significant contribution to carbon reduction. Therefore, the increasing demand for biodegradable plastic products has driven the development of the market for these products.

• Industrial chain integration

• Import substitution of raw materials

• There is a strong demand for disposable biodegradable shopping bags.

• Consumer behavior (challenges)

The market for disposable biodegradable plastic products in China is fragmented, with about 1,200 market operators as of December 31, 2021. Based on the sales revenue of disposable biodegradable plastic products in 2021, the five major manufacturers of disposable biodegradable plastic products in China accounted for about 13.4%. The company ranks fourth among all disposable biodegradable plastic product manufacturers in China, accounting for about 2.6% of the market share in 2021. Calculated based on the sales revenue (including shopping bags and roll-up bags) of disposable biodegradable shopping bags in 2021, the company accounted for about 3.6% of the total sales revenue of disposable biodegradable shopping bags in China.

The market for disposable biodegradable plastic products in Northeast China is relatively concentrated, with the top five manufacturers accounting for about 53.9% of the sales revenue from disposable biodegradable plastic products in 2021. Ranked first among all manufacturers of disposable biodegradable plastic products in Northeast China by sales revenue in 2021, the company holds a market share of 29.6%.

The market for disposable biodegradable plastic products in Northeast China is quite concentrated, with the top five manufacturers accounting for about 64.9% of sales revenue from disposable biodegradable shopping bags in 2021. The company ranks first among all disposable biodegradable plastic product manufacturers in Northeast China, with a market share of about 40.6% in 2021.

Frost & Sullivan has extensive research experience in the chemical and materials industries, assisting well-known enterprises in successfully accessing the capital market. Successful listings include: Shengneng Group (2459.HK), Jinli Yongci (6680.HK), Avia Avian (IDX: AVIA), Global New Materials (6616.HK), Dafeng Equipment (2153.HK), Yihai International (8659.HK), GHW (9933.HK), Sanhe Fine Chemicals (0301.HK), Xingyu Holdings (2346.HK), Xinghe Holdings (1891.HK), Xuyang Group (1907.HK), Long Resources (1712.HK), Shandong Gold (1787.HK), Henan Jinma (6885.HK), Xingye New Materials (8073.HK), Dongguang Chemicals (1702.HK), Zhongqi Group (1932.HK), Xinbang Holdings (1571.HK), Meigu Technology (8349.HK), Huajin International (2738.HK), Flot Glass (6865.HK), Dinos (1452.HK), Caike Chemicals (1986.HK), Chang'an Renheng (8139.HK), Sansida (1337.TWSE), Born.NYSE, CPC.NYSE, Gu Shan Group (GU.NYSE), Tianhe Chemicals (1619.HK), Yihua Holdings (2121.HK), Sijia Group (1863.HK), and others.