Net Profit Surges by 53.5% to HK$129.3 Million; Remarkable 52.6% Revenue Growth in Web Sales Business

Business Review

Amidst the new normal in a "stay-at-home" economy, customers have been shifting to online and digital solutions as well as other contact-minimising channels to purchase goods. During the Reporting Year, the Group was able to capture such opportunities as its web sales business yielded a remarkable revenue increase of 52.6% to approximately HK$158.0 million (FY2019: HK$103.5 million). In particular, the Group recognized significant growth of approximately 397.2% in the total sales amount mainly derived from jigsaw puzzle products through www.createjigsawpuzzles.com for FY2020 compared with that of FY2019, resulting from the increased time spent on those products by people in the U.S. under different COVID-19-related social distancing policies that underpinned the rising demand.

At the beginning of 2020, the COVID-19 outbreak adversely affected the business operations of several of the Group's OEM customers in the U.S. and Europe, which subsequently impacted the Group's OEM sales. In view of such challenges, the Group maintained close communications with its customers and provided different solutions to accommodate their situation and overcome this crisis. As a result, export orders were successfully restored to normal levels in the second half of 2020. Overall, revenue derived from OEM sales dipped only slightly by 1.4% to approximately HK$1,074.6 million for FY2020 (FY2019: HK$1,090.1 million).

The Group's gross profit increased by 19.5% to approximately HK$436.9 million in FY2020 (FY2019: HK$365.6 million), while gross profit margin rose to 35.4% from 30.6% in FY2019. This increment was mainly due to an increase in the proportion of web sales which have a relatively higher gross profit margin than OEM sales margin, reduced production costs of our factories in the PRC due to cost control measures imposed by the Group, and the reduction and exemption from several corporate social insurance premiums of enterprises in the PRC during the Reporting Year.

Under the continuing uncertainties in the global economy, the Group adopted a number of cost control measures during FY2020, notably the streamlining of work processes through the use of advanced technology and other possible approaches in production planning and control, and reducing operating costs via introduction of new suppliers and negotiations with service providers to achieve better prices. In addition, the Group continued to relocate to Vietnam part of the end-to-end production of products for the U.S. market by cooperating with a subcontractor. The Group has also been continuing to improve its operational efficiencies and actively pursue Industry 4.0 while staying focused on its long-term opportunities.

Prospects

The COVID-19 pandemic and the trade tensions between the PRC and the U.S. are expected to subsist for a foreseeable period of time. The increasing labour and material costs within the PRC will also pose major challenges to the Group in the coming years. The Group will continue closely assessing and monitoring developments relating to these risks and uncertainties and will take appropriate actions to mitigate their impacts.

In pursuit of its long-term business development strategies, the Group has been striving to continuously expand its web sales business and diversify its sales in different markets. The Group is pleased to have witnessed desirable outcomes including the encouraging performance of its web sales business and the increases in both volume and proportion of sales in the European markets in FY2020. The Group will continue employing additional staff and reinforcing resources in its web sales business segment to enhance its competitive advantages and further expand customer base.

Meanwhile, the Group intends to set up a production site in Vietnam and acquire machines for use there. In relation to this, the Group has entered into a non-legally binding memorandum of understanding ("MOU") with a vendor in June 2020 in which it intends to acquire certain land, factories, machines and assets in Hai Duong Province, Vietnam. The Board believes that such an acquisition will enable the Group to set up its own production site to tackle the impacts arising from the PRC-U.S. trade tensions and to undertake end-to-end production of the Group's principal products for its customers in the U.S. in addition to mitigating operational risks. All in all, the expansion of manufacturing capacities outside the PRC will remain the Group's key strategy.

Mr. Cheng Wan Wai, Founder, Chairman and CEO of Q P Group concluded: "We are pleased to report that the Group's financial performance remained strong in FY2020 as we captured opportunities to expand our ecommerce and online shopping business. We expect our web sales business to continue serving as our key growth driver in the future. Looking ahead, we remain confident that by building on our reputation, strong product portfolio and stable business relationships with customers, we are in an excellent position to deliver sustainable growth and returns to our shareholders in the long term."

About Q P Group Holdings Limited (雋思集團控股有限公司; Stock code: 01412)

Established in Hong Kong in 1985, Q P Group is one of the leading paper-based tabletop games and paper-based greeting cards manufacturers in the PRC. It has established stable and long-term business relationships with major OEM customers including an international greeting cards publisher and multinational children educational products and toys brands. Its principal product categories include tabletop games, greeting cards, educational items and premium packaging, which are sold on an OEM basis or through its self-operated websites. It operates two key production sites in Dongguan and Heshan in the PRC.

The five major websites are: https://www.makeplayingcards.com

https://www.boardgamesmaker.com

https://www.createjigsawpuzzles.com

https://www.printerstudio.com

https://www.gifthing.com

For more information, please visit: https://www.qpp.com/