Swang Chai Chuan Limited Announces Details of Proposed Listing on the Main Board of The Stock Exchange of Hong Kong Limited

Aug 9, 2022 | Business

Swang Chai Chuan Limited (“Swang Chai Chuan” or the “Group”), an established distributor of Food & Beverage (“F&B”) and other products for recognised international and domestic third-party brands and own brands in Malaysia, today announced the details of its proposed listing on the Main Board of The Stock Exchange of Hong Kong Limited (“HKEX”).

Swang Chai Chuan plans to offer a total of 241,000,000 shares under the Global Offering (subject to the Over-allotment Option), which comprises 216,900,000 Shares (subject to re-allocation and the Over-allotment Option) for the International Placing, and 24,100,000 Shares (subject to re-allocation) for the Hong Kong Public Offering. Based on the Offer Price HK$0.54 per Share (being the mid-point of the indicative offer price range of HK$0.52 to HK$0.56 per Share) assuming the Over-allotment Option is not exercised, after deducting estimated underwriting fees and other expenses, net proceeds from the Global Offering are estimated at approximately HK$86.0 million.

The Hong Kong Public Offering will commence from 9:00 a.m. on 8 August 2022 (Monday) and end at 12:00 noon on 11 August 2022 (Thursday). Results of allocations are expected to be announced on 18 August 2022 (Thursday), and dealing of the Group’s shares is expected to commence on the Main Board of HKEX on 19 August 2022 (Friday) under the stock code of 2321. Shares will be traded in board lots of 5,000 Shares each.

Sunny Fortune Capital Limited is the Sole Sponsor and Sunny Fortune Capital Limited and Elstone Securities Limited are the Joint Global Coordinators, Joint Bookrunners and Joint Lead Managers. BOCOM International Securities Limited, China Galaxy International Securities (Hong Kong) Co., Limited, CMBC Securities Company Limited, Haitong International Securities Company Limited and Phillip Securities (Hong Kong) Limited are the other Joint Bookrunners and other Joint Lead Managers.

Investment Highlights
Established F&B distributor of Own Brands, international and domestic brands in Malaysia
Swang Chai Chuan is one of the top 5 companies(1) in Malaysia F&B distribution industry. With its long years of experience in and dedication to the F&B distribution industry in Malaysia, the Group has become an established local F&B distributor with substantial scale, supporting over 200 international and domestic brands. Third-Party Brands distributed by the Group included Oreo, Cadbury, Ajinomoto, a British multinational ice-cream frozen dessert brand and a New Zealand international dairy product brand. The Group has also served a number of well-established retail chains such as Nirwana, TF Value-Mart, BS Group and Sabasun. To establish the reputation and enhance the market penetration, Swang Chai Chuan is committed to offering a wide range of products under different brands to customers with timely delivery service. At the same time, the Group has received awards and recognitions by Malaysian associations in recognition of the excellent product and services, such as the Superbrands Status and the Sin Chew Business Excellence Awards.

Strong sourcing network and long-term relationship with recognised international and domestic brand owners
The Group distributed and actively managed the diverse portfolio of F&B and other brands of a wide selection of quality products covering 4,000 SKUs, which can be divided into nine different core categories, namely dairy products, frozen food, packaged food and commodities, sauce, oil and condiments, beverages and specialty products, personal and baby care products, pet care products and cleaning and kitchen supplies. The Group has established long-term business relationship ranging from approximately 5 to 26 years with its five largest suppliers to date, thus enabling the Group to ensure a stable supply of products.

Since 2007, the Group started tapping into the development of certain Own-Brand Products, the variety of which was gradually expanded. The Group was able to provide different choices of F&B and other products to the customers under over 200 Third-Party Brands, consisting of approximately 140 international brands and approximately 80 domestic brands, together with products under five major Own Brands, such as CED, Mega Fresh, Mega Food, Sayangku and Snowcat, covering various product types and price ranges. Specialty products, salt, frozen seafood, frozen meat, and pet care products, etc. under the major Own Brands further enlarged the brand and product portfolio and consumer base of the Group. The Group will continue to explore new brands and products that are expected to have growth potential and to diversify the product offerings.

Large and diverse customer base with a strong focus on large retail chains and channels
The Group has established and maintained a large customer base with more than 11,000 active customers over the years with a focus on well-established retail chains. Many of the Group’s customers are established international retail chains and local retail chains which make purchases frequently and in huge quantities. As a result of the effort to diversify customer portfolio, the Group also serves F&B dealers and merchandisers, school canteens, hospitality and other customers. As at 30 April 2022, the Group had established long-term business relationship with the five largest customers during the track record period ranging from approximately 11 to 26 years. The Group achieved high customer retention rate with revenue generated from repeat customer accounts contributing over 90% of the total revenue during the track record period. With the large and diverse customer base as illustrated above, the increasing scale and complexity of the customers’ business operation have driven demand for F&B products sourced from suppliers that scale up the procurement and other business activities, thereby growing the revenue. The Group also enjoys economies of scale and continues to optimise its cost structure and increase its profitability.

Expansive distribution network is strategically located and well equipped with temperature-controlled facilities
The Group’s distribution network, which form the cornerstone of warehousing and logistics management services, can effectively facilitate the supply chain of F&B distribution and deliver products to more customers on a timely basis with delivery lead time as short as within 24 hours. The Group currently operated 12 warehouses strategically located in the major sales regions in Peninsular Malaysia, with designated storage capacity of approximately 25,600 CBM, nine of which are equipped with cold storage facilities with an aggregate of approximately 4,550 CBM mainly for storage of frozen food and dairy products. The Group also operated a fleet of over 140 self-operated logistics vehicles, of which approximately 100 are refrigerated trucks, which facilitate an effective and efficient flow of warehousing and logistics management operations.

Proven track record of financial performance
During the track record period, the gross profit margin of the Group showed an upward trend, with the gross profit margin in FY2021 reaching 14.1%. Gross profit amounted to approximately RM94.5 million (equivalent to approximately HK$181.7 million) in FY2021, representing a year-on-year increase of approximately 18.5% from FY2020. Adjusted net profit also rose by approximately 29.9% year-on-year from FY2020 to approximately RM28.6 million (equivalent to approximately HK$54.9 million) in FY2021. (2)

RM’000(approximately) FY2019 FY2020 FY2021 4M2022(As at 30 April)
Revenue 497,435 564,632 668,738(equivalent to approximately HK$1,286,035) 266,652(equivalent to approximately HK$512,792)
Gross profit 66,187 79,733 94,508(equivalent to approximately HK$181,746) 38,753(equivalent to approximately HK$74,525)
Gross profit margin 13.3% 14.1% 14.1% 14.5%
Adjusted net profit* 17,686 21,985 28,562(equivalent to approximately HK$54,927) 13,556(equivalent to approximately HK$26,069)
Adjusted net profit margin* 3.6% 3.9% 4.3% 5.1%
* Adjusted net profit was calculated based on the profit for the year excluding listing expenses during the track record period

During the track record period, the Group recorded ongoing growth in revenue, gross profit and adjusted net profit. At the same time, gross profit margin and adjusted net profit margin also continued to rise.

Experienced and dedicated senior management team
The Group has an experienced, dedicated and capable management team led by the executive Directors, the Soon Brothers, who have been instrumental in spearheading the growth of the Group and have over 30 years of experience in the business of distribution of F&B products in Malaysia. They are responsible for the overall business strategy, planning, operational and sales management and development of the Group. In addition, the Group has a loyal, experienced and capable senior management team with extensive operational expertise and in-depth understanding of the F&B distribution industry in Malaysia and is able to establish a high degree of product differentiation and a broad brand portfolio.

Future Growth Strategies
Further enhancing distribution and sales capabilities by investing in cold chain and other infrastructure
During the track record period, the Group’s revenue generated from frozen food and dairy products represented approximately 50% of the total revenue. Both frozen food and dairy products are sold by the Group under, in addition to Third-Party Brands, Own Brands or on a White-Label basis which generally have a higher profit margin as compared to the distribution and sales of Third-Party Brand Products. Going forward, the primary business strategies of the Group should pivot around enhancing the cold chain warehousing and logistics capabilities and management. The Group plans to (i) set up a new warehouse with cold storage facilities and upgrade the self-owned warehouses with advanced features; (ii) acquire and upgrade cold and other logistics vehicles; (iii) enhance cold chain and other management and information systems.

Apart from cold storage facilities, the expected increase in designated general storage capacity would also facilitate the optimisation of the storage space and enhance the efficiency in sales of the products that are stored under general condition and improve the operational results.

Enhanced development of Own Products
Own Products and White-Label Products generally enjoy a high gross profit margin, which drives the expansion of relevant segments. The Group plans to develop the business of the Own Products and White-Label Products by purchasing new processing machines for processing so as to take up more orders, save labour costs and enhance processing efficiency. The Group will also conduct marketing and promotional activities of the Own-Brand Products to further conduct media marketing and engage with more potential customers.

Development of e-commerce business by launching a mobile application
Owing to the large and diverse customer base with more than 11,000 active customers, the Group receives and processes a large number of orders from various types of customers every day. To streamline the ordering process and in line with the market trend, the Group plans to develop the e-commerce operations by engaging an external party service provider to design and customise a mobile application. The Ordering App is expected to be launched and put into use by the fourth quarter of FY2023 and it is expected to create a more convenient and pleasant purchasing experience for customers and enhance the efficiency of the Group.

Strategic acquisitions and investments along the supply value chain
In view of the expected growth in the F&B distribution industry in Malaysia, the Group plans to continue to expand the business and explore potential business opportunities by acquiring majority or entire shareholding of, or investing in, local company(ies) or acquiring business(es) in the F&B supply value chain, including horizontal and vertical acquisitions and investments.

Use of proceeds
Based on the Offer Price of HK$0.54 per Share (being the mid-point of the indicative Offer Price range of HK$0.52 to HK$0.56 per Share) and assuming the Over-allotment Option is not exercised, after deducting estimated underwriting fees and other expenses, net proceeds from the Global Offering are estimated at approximately HK$86.0 million. The Group currently intends to use the net proceeds from the Global Offering for the following manner:

Applications / Percentage
— To further enhance the distribution and sales capabilities by investing in cold chain and other infrastructure
47.8%
— To develop the Own Products business by acquiring new processing machines and conducting marketing and promotional activities 18.0%
— To develop e-commerce business by launching a mobile application 7.0%
— For strategic acquisitions and investments along the supply value chain 17.2%
— As general working capital 10.0%

Cornerstone Investment
The Group has entered into cornerstone investment agreements with four cornerstone investors separately, namely Mr. Tee Kian Heng, Huihuang Resources Limited, Dato’ Sri Ng Chong Keong and Dato’ Sri Pek Kok Sam (each a “Cornerstone Investor” and together the “Cornerstone Investors”), pursuant to which the Cornerstone Investors have agreed to, subject to certain conditions, subscribe for such number of Shares (rounded down to the nearest board lot of 5,000 Shares) at the Offer Price, which may be purchased with an aggregate amount of approximately HK$47.0 million. The Group believes that introducing the Cornerstone Investors to the Global Offering and securing the subscription of a significant number of Offer Shares will set a solid platform for the launch of the Global Offering by demonstrating the Cornerstone Investors’ confidence in the Global Offering.

Swang Chai Chuan Limited
Swang Chai Chuan Limited is one of the top 5 companies* in Malaysia F&B distribution industry and is an established distributor of F&B and other products for recognised international and domestic third-party brands and own brands. Swang Chai Chuan Limited also provides suppliers with warehousing, logistics, sales and marketing support and other value-added services
* In terms of revenue in 2021, according to Frost & Sullivan

Capitalised terms used herein shall have the same meanings as those defined in the prospectus dated 8 August 2022, unless the context otherwise requires.

Media enquiries:
Strategic Financial Relations Limited
Veron Ng Tel: (852) 2864 4831 Email: veron.ng@sprg.com.hk
Mel Lai Tel: (852) 2864 4855 Email: mel.lai@sprg.com.hk
Aggie Fang Tel:(852) 2114 4987 Email: aggie.fang@sprg.com.hk

Notes:
(1) In terms of revenue in 2021, according to Frost & Sullivan
(2) These amounts are converted from Malaysian Ringgit to Hong Kong dollars or Hong Kong dollars to Malaysian Ringgit at an exchange rate of RM0.52 to HK$1.00. No representation is made that Malaysian Ringgit/Hong Kong dollars amount have been, could have been or may be converted to Hong Kong dollars/Malaysian Ringgit at that rate or at all.

Important:

1. This press release is for information purposes only and does not constitute or include any recommendation or invitation or offer (nor is calculated to invite such a recommendation, offer or invitation) by any person for acquisition, purchase or subscription of the securities of the Company nor does it intend to act as a recommendation of the sale of securities or any invitation or offer for acquisition, purchase or subscription of securities. This press release should accordingly not amount to an advertisement or invitation within the meaning of section 103(1) of the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong) or a prospectus or an extract from or abridged version of a prospectus within the meaning of sections 2 and 38B, respectively of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Chapter 32 of the Laws of Hong Kong). Investors should read the prospectus of the Company for detailed information about the Company and the proposed offering before deciding whether or not to purchase any securities of the Company. An application to subscribe for the shares referred to in this press release by any persons shall be made solely based on the prospectus and the application forms to be issued by the Company on 8 August 2022.

2. No application for the shares of the Company should be made by any person nor would such application be accepted without the completion of a formal application form or other application procedure that is issued with or in respect of the prospectus.

3. The directors of the Company collectively and individually accept full responsibility for the accuracy of the information contained in this press release and confirm, having made all reasonable enquiries, that to the best of their knowledge and belief, there are no other facts the omission of which would make any statement herein misleading.

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