Huazhang Technology Announces 2019/20 Annual Results

Improved performance with enhancement in Technical Reserves

Facing up to business challenges in a proactive manner

Result Highlights

• Revenue amounted to approximately RMB368.2 million
• Gross profit amounted to approximately RMB74.2 million with gross profit margin of 20.2%, increased by 4.4 ppts y-o-y
• Loss for the year substantially decreased to approximately RMB77.2 million, as compared to the loss of approximately RMB129.9 million for the year ended 30 June 2019
• Completed two representative turnkey projects, namely, the turnkey project of Anhui Linping Paper and the turnkey project of Chaozhou Hefeng Special Paper
• Established Huazhang Research Institute and enhance technical reserves
• Obtained 8 new patents, including a remote monitoring system for frequency converters and a high-end household paper pulp system
• Continuous breakthroughs in the R&D of Headboxes; As at 30 June 2020, the outstanding orders of MCN, a subsidiary of the Group, amounted to approximately RMB81.0 million

Financial Highlights

HONG KONG, Sept. 25, 2020 /PRNewswire/ -- Huazhang Technology Holding Limited ("Huazhang" and its subsidiaries, together, the "Group", stock code: 1673) announced its annual results for the year ended 30 June 2020 ("the year under review") today. The Group's revenue for the year under review amounted to approximately RMB368.2 million (the year ended 30 June 2019: RMB764.0 million), representing a decrease of 51.8%, primarily attributing to the impact of the COVID-19 pandemic. Loss attributable to owners of the parent substantially decreased to approximately RMB77.5 million (the year ended 30 June 2019: RMB128.3 million). Gross profit amounted to approximately RMB74.2 million with gross profit margin of 20.2%, increased by 4.4 ppts y-o-y (the year ended 30 June 2019: 15.8%).

BUSINESS REVIEW

During the year under review, the COVID-19 pandemic severely crippled the domestic and overseas economies and related activities, resulting in a significant impact on the Group's results and delays in the progress of projects and product shipment schedules. In the past few years, the Group's main development strategies were "All-encompassing services", "Belt and Road" and "Integrating Together, Creating Together, Benefiting Together", the core values of which are to provide better services to customers, expand new businesses and lead the industry forward. During the year, the Group has adhered to and consistently implemented these values and strategies, it has also achieved breakthroughs in technical reserves and technological innovation.

Establishment of Huazhang Research Institute and Enhancement in Technical Reserves

In order to meet the demand of domestic and overseas customers and to guide the development of the paper manufacturing industry towards the intelligent direction, the Group has established the Huazhang Research Institute this year to have adequate prowess in scientific research and technological innovation. The main objectives of Huazhang Research are to adhere to the demands of the paper manufacturing industry in the development of new products; track the development trend of domestic and overseas paper manufacturing industries; venture into fringe fields based on paper manufacturing; revolutionize the concept of traditional paper as well as related functional materials.

During the year ended 30 June 2020, the Group obtained 8 new patents, including a remote monitoring system for frequency converters and a high-end household paper pulp system, as well as 6 computer software copyrights, accumulating 119 registered patents (including 25 invention patents, 75 utility new model patents and 19 software copyrights) in total.

Completion of Representative Turnkey Projects and Accomplishment in Technical Breakthroughs

During the year, the Group completed two representative turnkey projects, namely, the turnkey project of Anhui Linping Paper and the turnkey project of Chaozhou Hefeng Special Paper.

The Anhui Linping Paper project is the largest single project ever undertaken by the Group in its history of turnkey project business, with a total contract value of RMB350.0 million. The project was related to the contracted construction of a production line for two high-ended wrapping paper machines of the same specification for Anhui Linping Paper. The paper machines have a total production capacity of 500,000 tonnes. The Chaozhou Hefeng Special Paper project, in the meantime, is recognized with the Group's first independently designed and constructed paper manufacturing machine, for which the Group has assimilated all the experiences it acquired from leading international manufacturers of paper making machines with advanced paper making equipment in China. The machine produces corrugated paper and T-paper with a total production capacity of 200,000 tonnes. The total contract value of the Chaozhou Hefeng Special Paper project was RMB134.0 million.

The completion of the above two projects marks a major breakthrough in the Group's project undertaking capability as well as its design and development capabilities, it has provided valuable experience in improving the Group's full-time all-encompassing services for paper manufacturing enterprises, and has served to guide equipment suppliers in China's paper manufacturing industry forward into the field of scientific research.

Continuous breakthroughs in the R&D of Headboxes and Acclaimed Quality in the Market

In April 2020, the headbox products of Hangzhou MCN Paper Tech Co., Ltd.("MCN"), a subsidiary of the Group, were included in the "Hangzhou Quality Products Recommended Catalogue 2020", which is a recognition of MCN's products and technologies.

With the accumulation of theoretical knowledge and experience, MCN has successfully delivered dozens of household paper machine headboxes with designed speed of 600 to 1,600 meters/minute and maximum width of 4,200 millimeters, and the quality and performance of these headboxes have been widely recognized by paper mills. At present, MCN's R&D team is pressing full steam ahead for 5,600 millimeters in paper width and 2,000 meters/minute or higher in terms of speed. Whilst MCN is developing headboxes for household paper machines, it is also seeking breakthroughs in the development of hydraulic headboxes as accessories for long-wire paper machines. MCN's R&D team tryout design and manufacturing of headboxes as accessories to the 6000/800 paper machines for Vietnam Thuan An Paper in 2020, and has long targeted a speed of 1,200 meters/minute and a width of over 6,600 millimeters for their headboxes. As at 30 June 2020, the outstanding orders of MCN amounted to approximately RMB81.0 million.

Face up to overseas business challenges in a proactive manner

With regard to overseas operations, the Group has entered into a US$19.0 million (approximately RMB130.9 million) project contracting services contract with a paper manufacturing enterprise in Vietnam for the construction of a 120,000 tonnes paper production line for the customer. As at 30 June 2020, the Group has been providing machinery, equipment and installation services for the project, its progress, however, has been delayed by the COVID-19 pandemic and is expected to be completed by the financial year 2021. The Group expects that the completion of the Vietnam project will help promote the Group's products and services in the Southeast Asian market. Due to the impact of the COVID-19 pandemic, a number of Southeast Asian countries are under lockdowns, which may pose difficulties to the Group's future sales plan or overseas promotion. The Group will liaise with existing and potential customers through the internet (including video conferencing), so as to minimize the impact of the pandemic to the Group's overseas business expansion.

Looking ahead, Mr. Zhu Gen Rong, the chairman of Huazhang Technology Holding Limited, said, "Global economies, almost without exception, have all suffered from the intertwined setbacks brought about by COVID-19 pandemic over the past year, so as the paper-making industry. In the long term, the state will continue to promote the transformation and upgrading of the industry, and intelligent factories and smart manufacturing will see further development. Looking ahead to the second half of 2020, the Group's operations will return to the right track with the resumption of the industry's supply chain and production as the epidemic in China comes under control. Since the end of the epidemic, the state has introduced a sequence of favourable policies for the expansion of domestic demand to stabilize the economy, which is expected to stimulate the industry's development. As the leading paper manufacturing equipment supplier in the China, the Group will step up its innovation and research and development, enhance technical reserves and expand into new businesses, so as deliver sustainable business growth for creating more values for all parties."

About Huazhang Technology Holding Limited

Huazhang Technology Holding Limited is an integrated service provider in paper-making industry and its principal business includes project contracting service, research and development, manufacture and sale of industrial automation systems, sludge treatment products and headbox, and after-sales and add-valued services. The Group has been in the paper-making industry for over 19 years. The Group's self-manufacturing system and equipment are custom-built in accordance with the specifications and requirements provided by the Group's customers, which include various papermaking enterprises in the PRC. The group strives to become a leading solution provider and comprehensive service provider for the papermaking industry in the PRC and overseas.