Huanlong Holdings Limited (hereinafter referred to as 'Huanlong Holdings') successfully listed on January 11, 2022, with a global issue of 114 million shares at a tender price of HK$1.22 per share, raising approximately HK$92.8 million.
During the Hong Kong listing process, Frost & Sullivan mainly undertook the following tasks: helping the company accurately and objectively understand its positioning in the target market, using objective market data to discover, support, and highlight the company's competitive advantages, assisting the company, investment banks, and other intermediaries in completing the relevant parts of the prospectus (such as the overview, competitive advantages and strategy, industry overview, business, and other important sections), helping the company communicate with the Hong Kong Stock Exchange and investors, assisting investors in quickly understanding the market ecosystem and competitive landscape, and assisting the company in completing feedback on various industry-related issues from the Hong Kong Stock Exchange.
Overview of China's Papermaking Blanket Industry
Paper definition and classification
Paper usually refers to a thin, matte or carpet-like fibrous sheet made by pressing and drying a wet fiber pulp obtained by suspending wood, shredded cloth or grass on a fine flat surface through water. Due to its lightweight, thin and flexible characteristics, paper is widely used for printing, writing, decoration and hygiene. Cardboard is a thick paper material that is heavier than ordinary paper and has higher hardness and foldability. Cardboard is commonly used for packaging.
Paper Classification (by Use)
Source: Frost & Sullivan report
Papermaking process
Papermaking mainly includes four stages: (i) pulp preparation; (ii) dehydration; (iii) pressing and drying; and (iv) finishing and processing. The pulp mixture and recycled paper fibers enter the wet pressing section, drying section, and calendering section from the headbox, where the pulp is dehumidified, the paper is formed and dried, and then further finishing steps are carried out.
Main stages of papermaking
Source: Frost & Sullivan report
Main types and origins of paper in China
Packaging paper (including carton board, corrugated linerboard, and whiteboard used for commercial and logistics packaging) is a major paper product in China, accounting for about 62.4% of the total paper production in 2020. The significant share of packaging paper is due to the demand from the logistics industry, as e-commerce and express delivery typically require packaging as a protective layer for goods and items. Printing paper, including newsprint, writing paper, and coated board, is mainly used for printing media and office stationery, accounting for about 22.0% of the total paper production in 2020. Guangdong, Fujian, Jiangsu, Zhejiang, and other eastern and southern provinces rely on complete infrastructure, production technology, and logistics systems to more effectively obtain raw materials and distribute products. In terms of paper production, the five major provinces (including Guangdong, Shandong, Zhejiang, Jiangsu, and Fujian) accounted for more than 60% of China's paper production in 2020.
The papermaking and paper products industry in China is fragmented. According to the China Pulp and Paper Association, in 2020, there were approximately 2,500 paper and board manufacturing enterprises in China. In terms of production volume, the cumulative market share of the top ten papermaking enterprises is estimated to be about 46.6%. Driven by stricter environmental policies, the papermaking and paper products industry is undergoing consolidation, with such policies shutting down small enterprises that are unqualified or non-compliant. Consequently, large papermaking enterprises that prove they have the capability to meet new standards can seize market share.
Source: Frost & Sullivan report
Definition and Classification of Papermaking Blankets
Papermaking blankets are fabrics used by paper machines for pressing and dehydration, consisting of a mixed fabric structure made of nylon and polyester. Papermaking blankets are mainly used in the wet pressing and drying sections to dehydrate, press, shape, and dry the paper. These blankets are placed inside the press rollers where the paper is already laid, absorbing water from the wet paper web without damaging it. Papermaking blankets are consumables with a replacement cycle of about 30 to 180 days and are regularly replaced in the paper machine. The replacement cycle of papermaking blankets depends on several factors, including the specifications of the paper machine and the type of paper produced.
Classification of papermaking blankets
Source: Frost & Sullivan report
Sales volume and sales value of Chinese paper-making blankets
The market demand for papermaking blankets is linked to the demand for paper. Specifically, increased production of paper machines, upgrades, replacements, and capacity expansions drive the demand for papermaking blankets, which are customized consumables for different paper machines. From 2016 to 2020, the sales volume of papermaking blankets in China increased from about 12,820.1 tons to about 17,487.9 tons, with a compound annual growth rate of approximately 8.1%. In addition to the production and consumption of machine-made paper and cardboard, the market demand for papermaking blankets depends on the upgrade of paper machines. In recent years, improvements in paper width and production speed, as well as capacity increases, have increased the wear and tear on consumables by paper machines. Moreover, consumables need to be replaced more frequently during the production process, leading to an increase in demand for papermaking blankets. Therefore, from 2016 to 2020, the growth in sales volume and sales value of papermaking blankets in China exceeded the growth in production and consumption of machine-made paper and cardboard.
Driven by the expected growth in domestic paper production and strong demand from Southeast Asia for papermaking blankets, sales of papermaking blankets have been growing rapidly since 2016. With improved product quality, they are expected to maintain a compound annual growth rate of 6.3% from 2021 to 2025. Similarly, the sales value of papermaking blankets in China increased from about RMB 21.899 billion in 2016 to about RMB 31.661 billion in 2020, with a compound annual growth rate of about 9.7%. As local papermaking blanket manufacturers continue to expand their high-speed papermaking blanket production, it is estimated that the sales value of papermaking blankets will grow at a compound annual rate of about 7.6% from 2021 to 2025.
The novel coronavirus pandemic had a temporary impact on the material supply and production of Chinese paper-making blanket manufacturers in the first quarter of 2020. However, given (i) that paper-making blanket manufacturers and their customers (i.e., paper mills) generally resumed operations in mid-February 2020; (ii) that paper mills had to extend operating hours after resuming operations to fulfill orders; and (iii) the issuance of the 'Catalogue of Plastic Products Prohibited, Restricted from Production, Sale and Use (Draft for Commentation)' which drove demand for paper products, it is expected that the market demand for paper-making blankets in China will increase from 2021 to 2025.
Sales volume and sales value of papermaking blankets in China
2016 - 2025 (provisional)
Source: Frost & Sullivan report
Overview of the Market Competition Pattern for Chinese Papermaking Blankets
Overall, the Chinese paper-making carpet manufacturing industry is relatively concentrated, consisting of a few market participants. According to Frost & Sullivan's data, there are about 20 well-known local enterprises and about 10 overseas investment enterprises engaged in manufacturing and selling paper-making carpets in China. Relying on advanced technology, research and development capabilities, and higher product quality, overseas investment enterprises in the Chinese paper-making carpet manufacturing industry are generally considered more competitive than most local manufacturers. On the other hand, only a few local paper-making carpet manufacturers (including Huanlong Holdings) have demonstrated the ability to produce high-quality paper-making carpets for high-speed paper machines, while most other local enterprises generally compete by supplying paper-making carpets for medium to low-speed paper machines.
Currently, the leading overseas investment enterprises in China's papermaking blanket manufacturing industry are multinational companies with a long history, advanced technology and equipment, focusing on producing high-quality blankets. Most of them have vertically expanded their operations, involving the supply of papermaking blanket machines, paper mills, and even paper products. The development of China's papermaking blanket manufacturing industry in terms of technological improvement and the enhanced R&D capabilities of leading market participants may pose obstacles to newcomers and threats to existing local enterprises lacking development capabilities.
According to Frost & Sullivan's data, the five major paper towel manufacturers in the Chinese market accounted for approximately 48.6% of the market share based on revenue in 2020. Huanlong Holdings ranks among the top five paper towel suppliers in the Chinese market, with Huanlong holding the fourth place and being the only paper towel manufacturer headquartered in China, accounting for approximately 5.8% of the market share based on revenue in 2020. Compared to the other five major paper towel manufacturers, Huanlong Holdings is mainly concentrated in China, focusing on paper towels as its main product. In contrast, some of the other five major paper towel manufacturers are global influential enterprise groups that may focus on selling other products, including paper machines and other consumables. Additionally, Huanlong Holdings offers paper towels with different speed ranges, while some of the leading enterprises mainly provide high-speed paper towels.
China's leading paper-making blanket manufacturer in 2020
Source: Frost & Sullivan report
Frost & Sullivan has extensive research experience in the packaging and printing industry, assisting well-known enterprises to successfully enter the capital market. Successful listings include: Fenmei Packaging (0468.HK), Jifeng Packaging (1820.HK), Auspex Global (1540.HK), Jingya Printing House (8391.HK), Global Printing House (8448.HK), Junqiu Holdings (8485.HK), Wanli Printing (8385.HK), and Xinxing Printing (1975.HK).
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