Asia Packaging Group Inc. is expanding its film-printing capacity by acquiring another Chinese company.
Asia Packaging, which has an office in Vancouver, British Columbia, and trades on the TSX Venture exchange in Toronto, has agreed to pay $7.93 million for certain assets of JinJiang City Anhai Hongrizhong Plastic Color Printing Co. Ltd. of JinJiang City.
The deal includes the JinJiang plant and equipment, which Asia Packaging will keep in operation but will eventually move next to its film plant in Yichun, according to Robert Wilson, vice president and director of Asia Packaging.
Asia Packaging signed the purchase agreement with Anhai Hongrizhong and Chinese businessman Jinyang Yang.
Asia Packaging's main business originally was cast polypropylene film but it has been diversifying into cast PP metalizing and printing and metalized PET film.
“The acquisition fits that strategy,” Wilson said in a telephone interview. Asia Packaging has been striving to boost its sales of higher-value products. To that end, sales for its third quarter ended Dec. 31 were C$11 million (US$10.9 million), 8.7 percent greater than a year earlier.
Asia Packaging took a big step in diversification last autumn when it installed two metalized PET film lines in Yichun, each with 5.3 million pounds per year of production capacity. Besides PP and PET films, the company makes labels and rigid PP packaging, such as cups, and is developing biodegradable packaging. Its production assets operate as subsidiary Qingfeng (Jiangxi) Packaging Materials Co. Ltd., established in 2004 in Yichun. The site has 365,000 square feet of space.
Asia Packaging is listed on the Canadian stock exchange because access to capital is easier there for a small-cap company than on most other exchanges, Wilson explained.
In Toronto, a small-cap company “gets more attention than on Nasdaq,” he said, adding that to list in Hong Kong, a company needs to be large and to list in China is time-consuming.
Asia Packaging was formed in April through a reverse takeover of a shell company by Mei Tak Group Ltd., now a subsidiary of Asia Packaging.
“We are pleased to report that we have improved our performance as we continue to shift our product focus towards higher-margin medical products,” said Asia Packaging President and CEO Wenge Hong in a March 1 news release. “Further, the acquisition of Anhai Hongrizhong will increase our mix of higher-margin products while bringing us closer to larger customers.
“The Anhai Hongrizhong business generated over $6 million in revenue last year and is profitable,” he said.
Net income for Asia Packaging's third quarter was up 10.3 percent to C$2.3 million (US$2.28 million).
Wilson said Asia Packaging's sales are concentrated in local markets among producers of traditional Chinese medicines, pharmaceuticals and food. Cast PP work once accounted for more than half of sales but now represents well under half of revenue, he estimated.
Asia Packaging said 20 percent of its payment for the Anhai Hongrizhong assets is conditional on the latter reaching sales targets over the next two years.
The company estimates on its website that the Chinese market for plastic packaging is about US$25 billion per year.