Brilliant Circle Holdings 贵联控股: Company Analysis Part I

After had a study on AMVIG Holding, next of course is its competitor, Brilliant Circle Holding (Stock code:1008). The group previously name CT Holding which principally involved in book printing services. 

In 2010, the group acquired Brilliant Circle from Tsoi Tak who is also the chairman of the board as well as the controlling shareholder of the company for HKD2.4 billion with issuance of 480million new shares at HKD5 each. 

The group later changed its name to Brilliant Circle from CT Holding earlier. The acquisition is considered as a business combination under common control as Mr Tsoi Tak is the ultimate controlling party of both companies.

The Group now consists of seven manufacturing entities, five of which have been awarded “National High-tech Enterprise” recognitions, and one corporate research and development centre.

The Group and its associated company’s annual production capacities of cigarette package printing and transfer paper are approximately 5.6 million cases and 4,000 MT

The Group was also among the first to obtain China’s “Green Printing Enterprise” qualification.  

In 2011, China Packaging Federation granted the Group the title of “China Tobacco Packaging Research and Development Center”, responsible for undertaking major research topics for the industry.

So far, the Group and its associated company have 124 national patents, 2 provincial class corporate research and development centers, 2 corporate engineering centers and 2 national class testing laboratories.

Ever since the group acquired the cigarette packaging business, the respective segment become the core and breadwinner of the group. Revenue and net profit also increased tremendously. However, the growth is not that splendid for the cigarette packaging segment.

Operating profit margin and net profit margin also around the same with above 20%. The group's associate is its 35% stake in Changde Goldroc Rotogravure Printing which is also involved in cigarette printing packaging service. The associate helps to contribute certain amount of profits every year.

Besides, in June 2012, the group acquired 60% stake in Giant Sino Investments to hold majority ownership in YangFeng Printing & Packaging which also involved in cigarette packaging.

60% of the cost comes from the pulp which Chile is one of the world largest pulp producers. Gross profit margin for the past few years was quite stable at around 30%.

The group was in net borrowing position in its latest financial year with net gearing ratio of 0.23 as the group took up a big amount of borrowings in FY2013 for refinancing existing indebtedness and payment to non-controlling interests of one of its subsidiaries.

Interest payment to operating profit ratio is around 20% which is not a very healthy position. I wish the group able to reduce it below 15% or even 10% to increase it profit margin.

Current ratio is more than 1.

Shareholders' equity and total borrowings contributed around 57% and 24% of total assets respectively.

In terms of cash flow, it's similar to AMVIG holding as the group does not need much capex for growth every year. The group averagely spent less than 5% of its sales on capex yearly. Thus the free cash flow has been positive, stable and increasing throughout the years.

Operating cash flow margin averagely more than 25% for the past few years. FCF/Sales and FCF/Invested Capital are both impressive at >10%.

The quality of its earning is quite good as the net cash flow from operation / net profit ratio has been more than one throughout the years.

Overall, the group's management on its cash flow is quite good.

The cash conversion cycle improved since the acquisition of the cigarette packaging business. It may not be as good as AMVIG but still quite good at around two to three months period. 

In terms of return, its ROE is averagely around 20% while its ROIC had a drop in FY2013 due to increased invested capital from borrowings and smaller growth from its operating profit. 

As usual, the part I analysis consist of the brief introduction followed by the financial statement, will evaluate more on next post.