Hong Kong-based plastics processor TK Group (Holdings) Ltd. unveiled plans Dec. 11 for an initial public offering that it hopes will raise more than HK$233 million (US$30.1 million) to fund a significant expansion and give it cash to acquire mold-making companies.
The company, which says it is currently China's second-largest custom mold maker, sees its IPO in the Hong Kong stock market providing resources to expand capacity more than 25 percent and open a new division to make ultra-large tonnage molds for the car market.
TK said its sales grew rapidly between 2010-2012, in part from a strategy to upgrade its operations and aggressively set up a network of sales agents in developed economies like North America, Europe and Japan.
It said its sales from both injection molding and mold making doubled from HK$536.1 million (US$69.1 million) in 2010 to HK$1.096 billion (US$141.3 million) last year.
“We began executing a new business strategy in late 2009 which entailed engaging certain third-party contract sales representatives to promote our one-stop total plastics solutions in targeted overseas markets,” the company said.
That strategy is not without risk, as it disclosed that it's become more dependent on that third-party sales force. Those reps, including the new ones in Germany, Great Britain, Japan and the United States, accounted for 35 percent of TK's 2012 sales, a higher percentage than 2011, the company said.
TK employs about 3,200 at four factories in China, including about 900 mold makers.
The company is targeting an IPO share price of HK$1.25, but even after going public more than 61 percent of the company would still be in the hands of entities controlled by its three top executives, Chairman Li Pui Leung, CEO Michael Yung and executive director Lee Leung Yiu.
The single largest chunk of the IPO funds, HK$51.7 million (US$6.66 million) would go toward expanding molding capacity in its factory in Shenzhen, adding 42 machines and a spray painting workshop over the next two years.
It would also spend HK$38.7 million (US$4.99 million) to add 29 injection presses in its facility in Suzhou, Jiangsu province. The company currently has 190 molding machines, mainly Japanese brands like Fanuc and JSW.
Some of the money raised would also go toward additional robots and automation.
“As labor costs increase in [China], we intend to increase our capital investments and efforts in further automating our production processes by purchasing equipment to replace certain manual processes,” the company said.
The IPO would also fund a major expansion of its mold making capacity, with HK$45.2 million (US$5.82 million) going toward establishing manufacturing for ultra-large molds for parts like bumpers and instrument panels, and another HK$32.3 million (US$4.16 million) for general mold-making capacity increases.
It also budgeted HK$25.7 million (US$3.3 million) for acquiring other mold making companies, but said it had not identified any prospects at this point.
In general, it said it saw opportunities in many of the same industries it has been active in, although with perhaps a larger focus on automotive and more attention to the medical industry.
“We have identified, among others, the medical devices, automotive, commercial telecommunication equipment and consumer electronics industries as growing industries, and intend to continue taking advantage of our early entry into these downstream industries and capturing the benefits of such industries' growth,” it said.
Major customers include home appliance makers Electrolux and Whirlpool and flash drive maker SanDisk, it said.
