Brief Introduction: Great Group's Executive Chairman and CEO Mr. William Weng (left) with fund manager Mr. Johnny Jia of China Best Group.  Photo: Andrew Vanburen

SINGAPORE-LISTED GREAT GROUP Holdings Limited (SGX: I5H), one of China’s leading domestic underwear brand providers, got a top line boost in the first quarter from its contract manufacturing for men’s and women’s undergarments as well as children’s apparel.

With approximately 1,700 employees, the Quanzhou-based firm in southeastern China saw its revenue jump 28.8% year-on-year in the first quarter to 139.2 mln yuan on larger and more high-end OEM orders with higher ASPs.

In a recent site visit organized by Aries Consulting and Financial PR, a half dozen Greater China fund managers were able to meet with senior executives at the group’s plant in Fujian province and tour its manufacturing facilities, an occasion which also gave the group a chance to explain its future growth strategy.

"Our revenue increase in the past quarter is primarily due to larger orders with better pricing received near the end of the previous financial year. The top line growth increase is mainly attributable to the change in the product mix via our contract manufacturing for more complicated designs and higher-volume products with higher average selling prices,” said Mr. William Weng, Great Group’s Executive Chairman and CEO.

Great Group 1Q 2010 1Q 2009 % change
Revenue (rmb) 139.2 mln 108.1 mln +28.8%
Net profit 19.3 mln 18.3 mln +5.5%
EPS 7.29 cents 9.13 cents (-20.2%)
No. of issued shrs 265 mln 200 mln +32.5%

During the first quarter, OEM revenue alone rose 28.9% year-on-year to 123.0 mln yuan, sales from its self-brand GRAT.UNIC were up 25.7% at 15.6 mln yuan.

 “The overall gross profit margin in the first quarter decreased to 18.0% from 22.9% last year due to the increase in the cost of raw materials,” Mr. Weng added.

However, the Group was upbeat on prospects going forward, especially with its recent higher-margin OEM orders, its ongoing brand building campaign which requires higher ASPs, and constant expansion of production capacity and its retailing network.

The group has its origins in undergarments, and would continue to maintain that focus.

CEO Mr. Weng began producing pieces in Quanzhou in 1993 with a very modest investment in a small workshop, manufacturing undergarments for clients.

Seven years later, he established Great Group, which began by focusing on OEM orders from foreign clients.

L-R: Kent Lo, Senior Consultant, Aries Consulting; Mr. Johnny Jia, Investment Manager, SHCB; Mr. Andy Wang, Investment Analyst, Greenwoods Asset Management; Mr. William Weng, Executive Chairman & CEO, Great Group Holdings; Ms. Angel Tsai, General Manager of Production, Great Group Holdings; Mr. Rocky Lu, Board Chairman, China Best Group; and Mr. Bevin Gang, Investment, SHCB. Photo: Andrew Vanburen

After building up experience and contacts, he launched the flagship “GRAT.UNIC” brand of undergarments in 2006, which was then known as “Great” and was re-branded to “GRAT.UNIC” in 2007. Following three years of steady sales growth of the Group, the company was successfully listed on the Singapore main board last year.

Ever since, the company has been very keen on bolstering its own-branded production and helping make the GRAT-UNIC name known across the country, and beyond.

Net proceeds from the September IPO were approximately 15.8 mln sgd through the issue of 80 mln Invitation Shares, comprised of 65 mln New Shares and 15 mln Vendor Shares.

At 0.295 sgd each, Great Group was priced at a price earnings ratio of approximately 4.1 times, based on its net earnings per share of 7.20 Singapore cents for the financial year ended December 31, 2008.

Today, its Singapore-listed shares are currently trading at around 0.255 sgd.

"Since our listing, we have discovered there is a steep learning curve to being a public firm, but we are up to the challenge. With our brand-building campaign we are confident that as China keeps growing, competition will grow as well. But we will also continue to grow and strengthen because of this campaign as well as quality upgrade and cost-saving practices,” Mr. Weng said.

This included an expansion of its product line, additional series, and new value-added options.

"Many of our more upscale products utilize anti-bacterial material, the effectiveness of which still remains after many, many washings," he said.

Another innovative concept taken hold of by the Group is its INSI-OUSI product series, a hybrid of sleepwear and leisure wear that could be worn in comfort both indoors and outdoors.

Flagship brand logo

"We are also hoping to produce pyjamas that can also be worn outside. We have always relied on underwear for growth, but we are open to any promising business opportunities that fall into our lap, including expanding into other product lines. We are expecting long-term, stable growth for Great Group,” the CEO added.

He added that Great Group would continue to focus on its OEM business, but building the GRAT.UNIC brand name was also a key objective for the group.

"Calvin Klein, Byford, Jockey and Pierre Cardin are our major competitors in China. CK is an especially big competitor in the major metropolitan markets. Therefore, brand building is crucial for us.” Mr Weng said.

"We recently set up a Shanghai subsidiary to focus on market establishment with a view to enhancing our market share in the Shanghai market. This is in furtherance of the Group's plan to gain domestic market share through increasing brand awareness and building a wider distribution network for our GRAT.UNIC brand,” he said.

In order to build up the brand name, the Group is engaging in a series of concrete steps, one being to establish and maintain sufficient brick and mortar POS locations in order to advertise, market and sell the products.

The Bottom Line: Great Group is targeting the higher-end undergarment market. Photo: Company

The CEO said Great Group was aggressively moving forward in this area, and the new Shanghai subsidiary would help further establish its brand presence in Shanghai, one of the China’s largest and most affluent cities.

"Currently, we have a dominant market presence in both the metropolitan city of Chongqing as well as in Fujian province. We are also the overwhelming leader in our home market of Quanzhou where we have two large retail outlets. Across the country, we have grown to 106 outlets spanning 17 provinces, with a mixture of self-managed and franchise model ownership,” he said.

"We rely more on on-site, POS-based advertisements, promotions and marketing activities rather than broadcast, print or new media,” Mr. Weng added.

"Barring any unforeseen circumstances, the Board of Directors is cautiously optimistic about our group's performance for FY2010. Last year was a tough operating environment, but this year we are more upbeat given our brand enhancement and better cost controls.”

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