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CMZ & Fuxing: Two zipper companies list on SGX in three months
Written by Sim Kih
Thursday, 20 September 2007
CMZ's finished zippers and its sliders customised for Calvin Klein (left) and Guess (right). Picture by William Lim/Sage Studio
FOLLOWING THE listing of premium zipper maker CMZ Holdings on 16 July (IPO: S$0.23), maker of zipper chains Fuxing China will float 775 million shares next Monday, 24 Sep 2007.
Fuxing’s IPO was launched last week (13 Sep), about three months after CMZ's.
China has been the world’s largest zipper producer since 1999. It sold over RMB 28 billion worth of zippers in 2005.
China’s zipper economy is dependent on downstream industries such as manufacturers of apparel, bags and luggage, sporting equipment and shoes.
Fuelled by growth of the domestic economy and relocation to China of factories of industries downstream, the industry has grown an average rate of 20% annually for nearly a decade.
There are now about 2,000 zipper manufacturers in China.
Other than Fuxing and CMZ, large Chinese zipper players include Zhejiang Weixing Industrial Development (‘Weixing’) and Fujian SBS Zipper Science & Technology (‘Xunxing’). Both are listed in Shenzhen.
Weixing also holds the title of world No. 1 button maker. Its zipper business contributed 24% to revenues in 1H07, or S$23 million.
Xunxing sold S$78 million (96% of consolidated revenues) worth of zippers, molds, metal and plastic press castings and zipper accessories in 1H07. About half of Xunxing’s revenues are derived from zipper chains and sliders (semi-finished zipper components).
The rest are mostly small to mid-sized players producing low-cost and low-quality zipper components.
Exchange
Company Name
Price (20 Sep)
Mkt Cap
1H07 Sales
FY06 PE
Manufacturing Niche
SGX
CMZ
S$0.245
S$75m
S$18m
10X
Premium finished zippers
SGX
Fuxing
S$0.460
S$357m
S$78m*
9X
Mass market zipper chains (component)
Shenzhen
Zhejiang Weixing Industrial Dev
Rmb 30.96
S$668m
S$95m
45X
Garment accessories
Shenzhen
Fujian SBS Zipper Science & Technology
Rmb 18.10
S$562m
S$81m
43X
Zippers, molds, metal and plastic press castings and zipper accessories
*Extrapolated from 1Q07 sales of Rmb 195 million (S$39 m).
Compiled by NextInsight.
IPO and secondary market valuation – China versus Singapore
Market valuations for zipper makers listed in China are thrice that of peers on the Singapore market.
Fuxing will list on SGX with a market cap of about S$357m.Its market cap is half of the two Shenzhen-listcos (S$500-700m) even though its net profit is twice as much.
Fuxing’s IPO valuation of 9 times historical earnings (IPO: S$0.46) is miniscule compared to the IPO valuation of 30 times Xunxing commanded when it raised about S$59 million on its Shenzhen debut December last year.
In China’s secondary market, sector price earnings are in the forties compared to about 10 times in Singapore.
Another contender in the premium zipper market
A zipper chain, such as those sold by Fuxing, are spooled rolls of fabric tape lined with teeth, but without any sliders or stops. Picture by Sim Kih
Fuxing will be raising S$80.5 million from the Singapore bourse.
With sales of Rmb 716.4 million in FY2006, Fuxing is four to five times the size of CMZ. Fuxing is also China’s largest domestic zipper player.
Fuxing and CMZ do not compete directly as each has its niche in the apparel and bag supply chain.
Fuxing makes zipper chains and sliders.
Fuxing's customers are trading companies who export sliders and zipper chains to Asia-Pacific and Europe. About 50% of the world’s zipper sliders and accessories are produced by China. Zipper chains and sliders respectively contributed 60% and 40% to Fuxing’s revenues in 2006.
Fuxing is planning to use more than half of its IPO proceeds to break into China’s premium zipper market, on which YKK, CMZ and Xunxing currently have a stranglehold over.
Are barriers to entering the premium zipper market high enough to prevent it from encroaching CMZ’s turf?
Brand value for an increasingly brand conscious nation
CMZ makes only finished zippers targeting the mid- to high-end zipper market. Industry growth for this market segment was 20% in 2006.
Finished zippers come complete with a chain, slider, puller and the top and bottom stops. Being customized, they sell for more than zipper chains, which are spooled rolls of fabric tape lined with teeth, but without any sliders or stops.
Close to 40 processes are involved in the production of CMZ’s finished zippers, making its production seven to eight times as complex in comparison to the production of Fuxing’s zipper chains.
CEO Shao Dajun once received an order for 60,000 pieces of zippers. The order contained so many permutations of batch sizes for teeth size, color, material and slider type, etc. that its specifications sheet of double-spaced 10 point font was as long as 37 meters when printed out.
Line managers, which take more than three years to train, are critical to the management of CMZ's premium zipper factory. Orders are much more complex to process.
That’s the reason Shao, 37, makes sure staff morale is strong by adopting carefully thought out human resources strategies.
CMZ’s growth strategy for its premium zippers
CMZ generated sales of S$18m out of its zipper business in 1H07, making it the smallest player compared to the other three.
Fuxing, Weixing and Xunxing generated S$78m, S$23m and S$78m from their respective zipper business segments.
CMZ’s net margins were 21.6% for 1H07, double that of Xunxing, the other pure premium zipper play, which netted 9.1%.
CMZ CEO Shao Dajun, 37, is the son-in-law of CMZ's founder and chairman. CMZ reaped S$18 m sales of zippers in 1H07. Picture by Sim Kih
So for Shao, small is beautiful.
CMZ is designated zipper supplier by international fashion labels like Calvin Klein.
It has no problem charging garment and bag manufacturers anything from one to thirty yuan for each finished zipper as a result. Price inelasticity of demand is assured as design houses have specified that their garment manufacturers use CMZ zippers.
A luggage bag or winter wear zipper could cost in excess of RMB 30. CMZ’s zippers sell on the average for Rmb 2.80, 35% of what YKK charges.
Shao wants to gain market share from YKK by continued R&D and marketing effort. He believes that will close the pricing gap between the Japanese giant and his company.
RMB 2-3 million is spent every year on making slider and puller molds with customized designs. Design builds brand equity, says Shao.
Shao studies YKK zippers and emulates its make and production. For example, quality raw materials from Japan are imported for the production of CMZ’s higher-end resin zippers. Tystron, used in the manufacture of high precision gears, is used for CMZ’s metal zippers.
There is much science involved. CMZ has even had to work with dye companies to develop zipper dyes. Design houses require color consistency between zipper and garment fabric - that zipper colors do not become distorted by the grades of sunlight which varies from continent to continent.
Product reliability in smoothness, strength and durability are key. CMZ’s factory defects account for less than 0.03%.
What is Shao's current R&D project? He is giving himself three years to raise CMZ’s metal zippers to YKK standards.
Though CMZ is relatively small, Shao is confident of the company’s future as the brand behind branded apparel and bags.
FION PHUA, Tee Up Marketing Enterprises (HP: 9760-5080)
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