The Offer

Company Overview

MGIH, a well-known supplier of complete paper-based packaging solutions, was formed in 1978. With a goal of being a one-stop integrated services provider for paper-related products, MGIH sells corrugated paper in Hong Kong. As of the date of this prospectus, MGIH had expanded its business beyond the sale of corrugated paper to include the production and sale of packaging products and corrugated products, with shipments to, among other places, the PRC, Hong Kong, Vietnam, Myanmar, Australia, Indonesia, Cambodia, Taiwan, Thailand, United States, India, and Germany. With its 40 years of business, MGIH has gained a wealth of knowledge and expertise in the design, manufacture, and distribution of packaging and corrugated goods.

Key Highlights

Primary Offering:

Based on an offering price of USD 4.00, the net proceeds to the business, will be USD 3,420,000. The company intends to issue 1,250,000 shares. Additionally, with an option for the underwriters to acquire up to an additional 1,87,500 shares, representing 15% of the ordinary shares. The underwriters may exercise this option at any time within 45 days of the offering's closing date, but solely to pay for any over-allotments that may have occurred. The underwriters will be required, subject to a few circumstances, to buy the shares for which they exercise the option, to the extent that they do so.

Use of proceeds:

Dividend policy:

On September 1, 2020, Yee Woo Shenzhen, a China-based subsidiary, declared a dividend to its than 100% shareholder YWPPC, a Hong Kong subsidiary, in the amount of USD 9.3 million, with a dividend withholding tax provision of roughly USD 0.4 million. At the time of the declaration, this was regarded as an intragroup transaction. The dividend was first announced to the immediate holding company of Millennium Printing, a Hong Kong subsidiary, on February 28, 2022. The same amount of dividend was then declared to the intermediate holding companies further up the chain, and eventually to the controlling shareholders.

Being a holding company, MGIH will be reliant on receiving money from the operational subsidiaries if it decides to pay dividends on any of its Ordinary Shares in the future. The PRC subsidiary's dividend payments to the parent firm are subject to PRC taxes, such as withholding tax. Moreover, PRC laws now only authorize the payment of dividends by a PRC firm out of cumulative distributable after-tax earnings that were calculated in conformity with its bylaws and Chinese accounting standards and laws.

Industry and competitive analysis

• The revenue size of the Chinese printing market increased from RMB1,271.2 billion in 2016 to RMB1,366.0 billion in 2020, a CAGR of 1.8%. It will continue to expand until it reaches RMB1,521.8 billion in 2025, a CAGR of 3.2% from 2021 to 2025.
• In China's market range in 2020, package printing accounted for 78.4% of all printing. In 2020, this proportion is anticipated to reach 80.9%. In the past 10 years, the package printing market has become the largest. Because of its strong correlation with several important industries like the fast-moving consumer goods and food industry, packaging is also the industry with the fastest growth rate when compared to business printing and publication printing.
• Yangtze River Delta Region in China's market range occupied the greatest portion of the printing market in 2020 with a ratio of 35.4%, followed by Pearl River Delta Region with an occupying rate of 22.9% and Bohai Sea Ring Area with a share of 17.4%.
• With a significant CAGR of 9.8% during the timeframe, the Vietnam printing market's size increased from USD5.4 billion in 2016 to USD7.9 billion in 2020. The strong CAGR suggests that the Vietnam market has a very high potential for growth even if it is significantly smaller than China's. With an 11.9% CAGR, it is predicted that the market would grow to USD13.5 billion in the future.
• Offset printing came in top, similar to the Chinese printing industry, with a share of 31.9% in 2020, up from USD1.6 billion in 2016 with a 12.2% CAGR. Flexo printing comes in second place in 2020 with a share of 29.1% and an 11.9% CAGR.

Financial Highlights (Expressed in USD):

• Increased Revenue: Sales of packaging and corrugated goods contributed to total revenues of USD 66,232,757 and USD 64,565,269 for the fiscal years that ended on June 30, 2022, and 2021, respectively. Despite a decline in the total volume of sales from 40,359 tonnages to 35,839 tonnages in the comparable periods, the increase was primarily the result of an increase in the average selling price from USD 1,600 per tonnage in the year ended June 30, 2021 to USD 1,850 per tonnage in the year ended June 30, 2022.
• Decreased Gross Profit: During the fiscal years ended June 30, 2021, and 2022, respectively, gross profit was USD 16,270,964 and USD 17,353,358, or 24.6% and 26.9% of operating revenue. The increase in raw paper costs for the year ending June 30, 2022, was the primary cause of the minor decline in gross profit margin.
• Liquidity and capital resources: Existing cash balances, cash flows from operating activities, and availability under loan agreements with banks make up MGIH's main sources of liquidity. MGIH had outstanding bank debt totaling USD 15,813,022 as of June 30, 2022. The short-term, fluctuating interest rate on bank borrowings ranges from 1.88% to 4.44%. MGIH has USD 19,447,451 in cash, cash equivalents, and restricted cash as of June 30, 2022. Cash is currently primarily used for operating and investing purposes.

Key Management Highlights

* Upon the SEC's certification of the effectiveness of the registration statement on Form F-1, of which the prospectus is a part, MGIH plans to nominate these people as independent directors.

Risk Associated (High)

Investment in the IPO of “MGIH” is exposed to a variety of risks such as:

• Dependence on Subsidiaries: Being a holding company, MGIH will get its funding from dividends given by the subsidiaries. It may be difficult for MGIH to cover parent company expenditures or distribute dividends to owners of ordinary shares if the subsidiaries' capacity to pay dividends to the business is restricted if there are tax repercussions.
• Stiff Competition: Many PRC-based packaging providers compete with the Company. MGIH might not be able to sustain the competitive advantages, and the business operations and profitability of the Group would suffer if these rivals have machinery and equipment, technical know-how, knowledge, and sales and marketing skills equivalent to or greater than the company.
• Rules and regulatory Risk: The activities may be significantly altered, along with the value of the ordinary shares, if the Chinese government were to intervene, influence, or exert more control over offers made to international investors and those made by China-based issuers. Moreover, political and regulatory involvement might severely restrict or altogether prevent the capacity to issue or continue to offer securities to investors, leading to a major decrease in value or the assets' being worthless.

Conclusion

During the fiscal years that ended on June 30, 2022, and 2021, respectively, sales of packaging and corrugated products contributed to total revenues of USD 66,232,757 and USD 64,565,269, respectively. For the fiscal years ended June 30, 2022, and 2021, respectively, the net income was USD 4,077,371 and USD 3,665,810. The decrease in administrative costs for the fiscal year that ended June 30, 2022, was the primary cause of the rise. MGIH has USD 19,447,451 in cash, cash equivalents, and restricted cash as of June 30, 2022. For the fiscal year that ended June 30, 2022, MGIH generated net cash from operating activities of about USD 2 million, which was primarily reflected in net income of about USD 4.1 million.

Despite the robust financial performance of the company in FY22, and healthy balance sheet, however market sentiment amid rising uncertainty in capital markets is jolted because of failure of five global banks over the past 1-month and this could have an impact on the company’s IPO as well. Further, increasing expectation of a potential recession in 2023 will continue to dampen investment sentiment in the near-term.

Hence, given the financial performance of the company for FY22 year, industry analysis, use of proceeds, and uncertainty hovering on riskier asset classes (equity, bond, and other capital market instruments) and associated risks “Millennium Group International Holdings Ltd. (MGIH)” IPO seems “Neutral" at the IPO price.