RENHENG Enterprise shares 67.4% over-subscribed

The company fixes offering price at HK$1.20 per share.

RENHENG Enterprise Holdings Limited (“RENHENG Enterprise”), a tobacco machinery manufacturer and supplier with a tobacco production licence and patented technologies, on Thursday announced its share placing allotment results.

Trading of RENHENG Enterprise’s shares on the GEM Board of the Stock Exchange of Hong Kong Limited will begin on 18 November 2011 (Friday). RENHENG Enterprise has offered 50,000,000 placing shares, based on the placing price of HK$1.20 per share, gross proceeds from the placing are expected to be approximately HK$60 million. The Shares will be traded in board lots of 2,000 Shares under the stock code 8012. Shenyin Wanguo Capital (H.K.) Limited is the Sponsor and Lead Manager of the placing.

Mr Wei Sheng Peng, Founder, Chairman and Executive Director of RENHENG Enterprise, said. “We are heartened by the support from investors for the share placement, with the placing shares over-subscribed by approximately 67.4%. The listing not only provides us with sufficient capital to further enhance product development and innovation, but also helps strengthen the confidence of potential customers of the Group, thus driving us to a leading position in the tobacco machinery industry in the PRC and accelerating the continuous growth of our business.”

The Group is one of 34* tobacco machinery manufacturers which have been granted the Tobacco Production Licence in the PRC. It is principally engaged in the manufacture, sale and provision of maintenance, overhaul and modification services of tobacco machinery products in the PRC. It generates its turnover primarily from three types of catalogued special-purpose tobacco machinery products as listed on the Tobacco Machinery Documents: (1) casing and flavouring systems, (2) pneumatic feeding systems and (3) pre-pressing packing machines, as well as related components and devices.

The Group possesses proven product development and customisation capabilities. Its tobacco machinery products are custom-made to meet the requirements of its clients, which include cigarette manufacturers and tobacco redrying factories in the PRC. With its product development capability and quality products, the Group has built long-standing relationships with cigarette manufacturers and tobacco redrying factories in the PRC. For the six months ended 30 June 2011, three out of its five largest end customers have maintained business relationships with the Group for periods ranging from two to nine years.

RENHENG Enterprise is committed to continuously improving and upgrading its production quality, facilities and production techniques. The Group has entered into a research collaboration agreement with Nanjing University of Science and Technology in 2008 for a term of 26 months to develop a new type of spraying device. It has also contracted to supply a customised casing and flavouring system with movable tanks to a cigarette manufacturer in Kunming during 2010, the Group’s first project of its kind. As at the Latest Practicable Date, the Group has obtained five solely-owned patents as well as two jointly owned patents in the PRC and has applied for the registration of eight jointly owned patents for its tobacco machinery products.

Product quality is of paramount importance to the Group. Thus, its quality control team is responsible for implementing quality assurance at every stage of the production process. The Group has achieved ISO 9001:2008 certification for its quality management system for the design, production and sales of electrical systems for the tobacco cutting production line, casing and flavouring systems and cut tobacco feeding systems, acoording to a RENHENG Enterprise report.

The Group is led by an experienced management team, members of which have more than eight years of experience in the tobacco machinery manufacturing or engineering industries. Under their leadership, the Group has continued to expand its sales network and team to undertake marketing and promotion to potential end customers across 21 provinces, four centrally administrated municipalities and four autonomous regions throughout the PRC. Under the steering of the management team, for the year ended 31 December 2010 and for the six months ended 30 June 2011, the Group’s turnover grew by 26.3% and 153.2% as compared to the corresponding period last year to around HK$91.71 million and HK$64.65 million respectively, while its gross profit grew by 42.9% and 114.4% to HK$40.61 million and HK$20.88 million respectively. In terms of products, the contribution to its turnover from casing and flavouring systems was the highest, accounting for approximately 66.7% and 88.7% of total turnover for the year ended 31 December 2010 and for the six months ended 30 June 2011 respectively.

According to the Global Adult Tobacco Survey, a nationally representative household survey published by Global Tobacco Surveillance System (GTSS) in August 2010, the number of adult smokers in China was approximately 301 million in 2010. Furthermore, according to the National Bureau of Statistics of China, fixed asset investment in the tobacco products industry in urban areas grew at a CAGR of approximately 20.1% between 2004 and 2009 from RMB8.7 billion to RMB21.7 billion. In addition, the State Tobacco Monopoly Administration announced its policy in 2010 to enhance the competitiveness and scale of domestic cigarette manufacturers, which is expected to drive consolidation amongst industry participants.
As a result, it is likely that cigarette manufacturers will grow larger in size and more resources will be spent on research and development in the tobacco industry. This, in turn, may create business opportunities for tobacco machinery manufacturers in the PRC.

In order to explore new market opportunities, the Group will focus its design and development initiatives on the expansion of product range and to create new and enhanced series of catalogued special-purpose tobacco machinery products with innovative designs to meet the evolving requirements of cigarette manufacturers and tobacco redrying factories. To this end, the Group will deploy more resources on R&D and innovation of products, and intends to purchase more production processing equipment with digital control or automation. Meanwhile, RENHENG Enterprise will put more efforts in promoting the Group and its products in the PRC, as well as establishing close contacts with the cigarette manufacturers and tobacco redrying factories, so as to proactively seize the market opportunities in the PRC.

Mr. Wei concluded, “We see great potential in the Chinese tobacco industry with the increasing sales of cigarette products over the past few years. We believe that the Group is in a favorable position to capitalise on our R&D capability, quality products, strong reputation, and close relationship with tobacco manufacturers and tobacco redrying factories to expand our market share and generate better returns for shareholders.”