Regina Miracle International (Holdings) Limited (“Regina Miracle” or the “Company,” together with its subsidiaries, collectively the “Group”) (HKEX: 2199), a leading global intimate wear company boasting an Innovative Design Manufacturer (“IDM”) business model, has announced its unaudited interim results for the six months ended 30 September 2019 (“1HF2020” or the “Period”).
In 1HF2020, the Group recorded a year-on-year increase of 2.1% in revenue to HK$3,128.7 million (1HF2019: HK$3,062.9 million). Benefiting from the rising production capacity and efficiency of its Vietnamese factories, gross profit grew by 6.9% to HK$703.7 million (1HF2019: HK$658.1 million), while gross profit margin grew modestly to 22.5% (1HF2019: 21.5%). EBITDA increased by 22.4% to HK$441.8 million (1HF2019: HK$361.1 million), with the EBITDA margin lifted to 14.1% (1HF2019: 11.8%). Net profit rose by 5.8% to HK$141.4 million (1HF2019: HK$133.7 million), with a net profit margin of 4.5% (1HF2019: 4.4%). Basic earnings per share attributable to owners of the Company amounted to HK11.6 cents (1HF2019: HK10.9 cents).
To share the fruits of the Group’s labours with shareholders, the Board has resolved to propose an interim dividend of HK3.8 cents per share for the six months ended 30 September 2019 (1HF2019: HK3.6 cents), which is in line with the policy of paying not less than 30% net profit of a fiscal year as dividend.
Mr YY Hung, Chairman, Chief Executive Officer & Executive Director of Regina Miracle, said, “Despite the complexity and variability of the business environment, Regina Miracle has remained fully dedicated to the optimisation of its production capacity layout in Vietnam. With over three years of factory operation experience in Vietnam and our Vietnamese Factories D and E having formally commenced operation in the first half of this fiscal year, we have strengthened our production capacity layout in Vietnam, which helped cater for the demand for our Vietnamese and Chinese production lines among our brand partners from different regions.
In addition, we have developed multiple trendsetting and well-received product series during the Period and have reinforced our collaborative ties with world-renowned brand partners. At the same time, we have adopted a strategy of brand and product mix optimisation in 2HF2019 with a view to striking an equilibrium between business development and profitability, which is conducive to attaining a more balanced customer portfolio. We are pleased to witness demand from our longstanding brand partners remaining keen in the year ahead. Hence, we will diligently raise the production scale and efficiency of our Vietnamese factories in the second half of this fiscal year.”
Business Review
Innovative products well received; Strengthened ties with brand partners; Achieved a more even balanced customer portfolio
Bras and intimate wear products remain the major source of revenue of the Group. During the Period, this segment contributed HK$2,580.3 million in revenue (1HF2019: HK$2,372.9 million), representing an 8.7% year-on-year increase and accounting for approximately 82.5% of the Group’s overall revenue (1HF2019: 77.5%). Segmental gross profit amounted to HK$590.3 million, with gross profit margin improving to 22.9% (1HF2019: HK$521.2 million and 22.0%).
During the Period, the Group launched an upgraded series of classic intimate wear products for one of its long-term brand partners, which received overwhelmingly favourable market response, thus further enhancing such partnership. Concurrently, the Group, with its trendsetting craftsmanship, succeeded in developing a well-acclaimed collection of intimate wear products for a major brand partner. The collection significantly bolstered the volume of orders as well as directly contributed to the forging of closer cooperative ties with the partner, thereby representing a major step forward in achieving a more balanced customer portfolio. In addition, wireless underwear products and chic bra top products drew particularly robust market demand, enabling the Group to record a marked uptick in associated orders.
Regarding the bra pads and other moulded products business, the Group has strategically reserved the majority of its bra pad capacity to facilitate in-house manufacturing of finished bras in recent years. In Vietnam, the Group has established the manufacturing capability and capacity to locally self-supply bra pads to its Vietnamese facilities, resulting in more effective control of raw materials cost. Nevertheless, with greater bra pad orders from the Group’s largest brand partner and expansion of business scope to the fabric processing and other accessories for high-tech electronic products, which recorded a notable revenue, revenue from the bra pads and other moulded products business rose by 34.0% to HK$345.6 million (1HF2019: HK$258.0 million), accounting for 11.0% of the Group’s total revenue (1HF2019: 8.4%). Gross profit and gross profit margin from the segment were HK$74.7 million and 21.6% (1HF2019: HK$55.2 million and 21.4%).
Innovative technologies gain recognition, driving long-term development of functional sports products
The functional sports products business contributed HK$202.8 million in revenue during the Period (1HF2019: HK$432.0 million), and accounted for 6.5% of the Group’s total revenue (1HF2019: 14.1%). The segment also recorded a gross profit of HK$38.7 million and a gross profit margin of 19.1% (1HF2019: HK$81.7 million and 18.9%).
In 2HF2019, the Group executed its strategy to optimise its brand customer and product portfolio, with the aim of facilitating more effective allocation of R&D and production resources. Consequently, the Group terminated its sports footwear business collaboration with one of its two footwear brand partners, and withdrew from its cooperation with certain sportswear customers whose order volume and efficiency were low, resulting in a decline in segment revenue. Nevertheless, the Group’s focus on cooperating with an American casual footwear brand partner contributed to the stable growth of relevant business, which helped to partially offset the loss in revenue incurred from the termination of the sports footwear business.
In addition, the Group has been strategically focusing on its international sports and leisure brand partners, with the aim to cultivate ties and thereby advance its sportswear business. By leveraging the Group’s proven innovation and development capabilities, it was able to apply the transformative craftsmanship of seamless bonding to sportswear products. These trendsetting products were well recognised by the brand partners. As a result, the Group recorded a significant rise in sportswear order volume despite the exits of other sportswear customers. Functional sports apparel remains a priority in facilitating the Group’s business growth in the future. Regina Miracle, with its strong, exceptional and selective customer base, will continue to drive the business growth of this segment.
Deployment of factories in Vietnam near complete Production efficiency rising
During the Period, production at the Vietnam and Shenzhen factories accounted for approximately 65% and 35% of the Group’s total revenue, respectively, of which Vietnam factories’ contribution achieved a significant increase – rising from 53% during same period last year, and is expected to further grow in capacity.
The Group has accumulated three years of factory operation experience in Vietnam. In particular, Factories A and B – its longest running facilities, have steadily matured, which has facilitated a gradual rise in production efficiency as well as improvement in profitability of production lines. Following the commencement of operation of Factory C last year, Factories D and E, which house more automated machineries, formally commenced operation during the Period. Hence, the Group has largely completed its factory layout in Vietnam Singapore Industrial Park (“VSIP”) in Hai Phong City, Vietnam. The Group is now gradually adjusting production lines allocation across Factories C, D and E to perfect its setup.
As at 30 September 2019, the Group had a total of approximately 34,000 employees in Vietnam, among whom skilled workers with over 1 year of experience accounted for 68% of the workforce at Factories A and B. With regard to the Shenzhen factory, a workforce of approximately 9,500 served the R&D hub and production base.
Properly adjust capacity allocation in Vietnam and Shenzhen; Focusing on enhancing overall management of existing factories to improve efficiency and cost effectiveness
Even though concerns over the global economy continue to exist, the Group remains optimistic about its future business growth and expansion plan, owing to its business development in the first half of the financial year, as well as the mid- and near-term business expansion plans of its brand partners.
In respect of capacity planning, all of the factories in VSIP Hai Phong City, Vietnam have commenced operation, while the new facility in Hung Yen Province that will principally be operated with seamless knitting technology is scheduled to begin operations in the second half of 2020. Consequently, the first phase of investment in production expansion in Vietnam has largely been implemented by Regina Miracle. As the Group is of the view that continuous production line expansion as well as improvement in production efficiency in the existing factories will be sufficient to drive meaningful growth in the near- to medium-term, it has no intention of investing in new operation facilities in the coming two years, but will rather focus on raising the efficiency and productivity of existing and upcoming facilities. Meanwhile, the management has witnessed a remarkable rise in efficiency at Factory A that has met their expectations, and will apply the experience gained from the successful operation to the new factories. The Group targets to hire approximately 4,000 additional staff to serve at VSIP Hai Phong by April 2020, and thereby complete its recruitment efforts for the Hai Phong location. The management is confident that overall production efficiency will significantly increase as development and recruitment efforts for the new factories stabilize, which in turn will help raise the Group’s profitability to an optimal level.
In respect of production capacity allocation, the Group will act in concert with its brand partners in their business development across different regions, and appropriately adjust production capacity allocation between Vietnam and Shenzhen. Currently, the production of orders for brand partners that are designated for export to the United States have largely been transferred to Vietnam. The management has also confirmed that the footwear products currently produced in Shenzhen will be transferred to Vietnamese Factory E by March 2020. By leveraging the Group’s unique technological capabilities and innovative craftsmanship, the management is confident that the footwear business will grow steadily.
Under the current China-US trade situation, the management will adjust the operational role of the Group’s Shenzhen Factory accordingly, which will focus on supporting brand partners’ development strategy to explore the Chinese market – locally producing products for their sales in China. Meanwhile, upgrade and transformation of the Shenzhen Factory will also take place, as the Group has already begun manufacturing cross-industry and cross-category developed fabric processing and other accessories for high-tech electronic products.
With reference to the Group’s brand and product portfolio, it will pursue a more balanced customer mix while consolidating ties with the current quality brand partners. Intimate wear remains core to its development. Meanwhile, the Group will continue to develop functional sports products. Apart from its product innovation, the Group has in recent years sought to standardise craftsmanship and automate production processes – supported by greater investment of resources. Going forward, the Group will be oriented by automation with respect to production equipment and technological development, which will pave the way for higher production efficiency and increase agility. In tandem, the Group will continue to reinforce its management of upstream supply chains to more effectively control raw materials costs.
Mr Hung concluded, “Looking ahead, Regina Miracle will uphold its stable development strategy. In the near term, the Group will focus on increasing the efficiency and productivity of existing and upcoming production capacity by enhancing overall management, in order to achieve profit optimization. We believe that the fruitful results of the Group’s efforts in expanding production capacity in Vietnam will be fully reflected in the near future, which will in turn steer Regina Miracle towards the breaking of new business ground and the creation of long-term value for brand partners and shareholders.”
About Regina Miracle International (Holdings) Limited
Founded in Hong Kong in 1998, Regina Miracle International (Holdings) Limited is a global leader in the intimate wear manufacturing industry. Adopting the innovative design manufacturer (“IDM”) business model, Regina Miracle offers its world-renowned brand partners diverse intimate wear and functional sports products, including bras, sports bras, panties, shapewear, bra pads, functional sports apparel and footwear. The Group has two strategic strongholds – its R&D and production base in Shenzhen, China and, since the Group expanded production capacity in 2016, Vietnam has become its important production base.
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