Financials
Unaudited Results for the Second Quarter ended 30 June 2008
Profit & Loss
Balance Sheet
Note:
The Company was incorporated in Bermuda on 12 December 2007 with share capital of S$1.00 and as at 31 December 2007, the Company has yet to complete the restructuring exercise. Accordingly, no comparative figures for the Company has been presented as it was not meaningful.
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Commentary on Financial Results
Revenue
For the second quarter ended 30 June 2008 ("Q2 08"), the Group recorded revenue of
approximately RMB542.8 million, an increase of approximately RMB184.9 million or 51.6% over
revenue of approximately RMB358.0 million for the second quarter ended 30 June 2007 ("Q2
07").
For the half year ended 30 June 2008 ("1H 08"), the Group recorded revenue of approximately
RMB1,048.9 million, an increase of approximately RMB416.7 million or 65.9% over revenue of
approximately RMB632.2 million for the half year ended 30 June 2007 ("1H 07").
The increase in revenue for both Q2 08 and 1H 08 was attributable to (i) the increase of the
number of our concessionary retail outlets, (ii) increase in our marketing efforts, and (iii)
launching of luggage to the market (no luggage sales for both Q2 07 and 1H 07).
Our revenue of Q2 08 recorded an increase of approximately 7.2% over the first quarter ended
31 March 2008 ("Q1 08"). Q2 08 backpacks and luggage sales recorded an increase of 6.7%
and 8.4% respectively over Q1 08.
As we build up our brand profile, we were able to increase the retail price and selling price of our
DAPAI brand of products in Q2 08. Our ASP for backpacks increased by RMB12.5 or
approximately 19.8% from RMB63.2 in Q2 07 to RMB75.7 in Q2 08 and increased by RMB10.4
or approximately 15.5% from RMB66.9 in 1H 07 to RMB77.3 in 1H 08.
We introduced luggage to the market in September 2007, as we expect the the increasing
domestic travel to drive demand for luggage. We sold approximately 845,000 units and1,628,000
units of luggage in Q2 08 and 1H 08 respectively. In Q2 08, our ASP for luggage was
approximately 2.8 times that of backpacks. Since luggage were newly launched in September
2007, there was no comparison to Q2 07.
For Q2 08, approximately 89.9% (1H 08, approximately 92.1%) of our products were sold under
DAPAI brand. All our DAPAI brand of products were sold in China. The rest were OEM sales and
they were customers overseas such as the EU, US, Canada and Australia. Going forward, in line
with our brand building strategy, we will be increasingly focused on sales under our own brand.
Cost of sales and gross profit margin
Our cost of sales increased by approximately RMB123.6 million or 51.0% from approximately
RMB242.4 million in Q2 07 to approximately RMB366.0 million in Q2 08, and increased by
approximately RMB281.3 million or 65.6% from approximately RMB428.9 million in 1H 07 to
approximately RMB710.2 million in 1H 08. The increase was in line with the increase in revenue.
Our gross profit increased by approximately RMB61.3 million or 53.0% from approximately
RMB115.6 million in Q2 07 to approximately RMB176.9 million in Q2 08, and increased by
approximately RMB135.5 million or 66.6% from approximately RMB203.3 million in 1H 07 to
approximately RMB338.8 million in 1H 08. The increase in gross profit was in line with the
increase in revenue.
Our overall GP margin increased slightly by 0.3 percentage points. For backpacks, our GP
margin decreased slightly by 0.1 percentage points from approximately 32.3% in Q2 07 to
approximately 32.2% in Q2 08 due to different composition of product mix. Since luggage were
newly launched in September 2007, there was no comparison to Q2 07.
Our overall GP margin of Q2 08 increased by 0.6 percentage points over that of Q1 08 and our
overall GP margin of 1H 08 increased by 0.1 percentage points over that of 1H 07. The
increases were due mainly to changes in the product mix of both backpacks and luggage.
Other Income
Other income increased by approximately RMB775,000 from approximately RMB95,000 in Q2 07 to approximately RMB870,000 in Q2 08 and increased by approximately RMB1,137,000 from approximately RMB147,000 in 1H 07 to approximately RMB1,284,000 in 1H 08. They were due to the increase in interest income from bank deposits. Bank deposits increased due mainly to the increase in net cash inflow generated from operation and proceeds from new issue of shares pursuant to our IPO. Our other income comprises mainly interest income from bank deposits.
Operating expenses
(a) Selling and distribution expenses
Our selling and distribution expenses increased by approximately RMB8.5 million or 51.5% from
approximately RMB16.5 million in Q2 07 to approximately RMB25.1 million in Q2 08. The
increase was in line with the expansion of our distribution network and our strategy to increase
marketing efforts and to build brand awareness and was due mainly to an increase in
entertainment expenses of approximately RMB0.9 million, in traveling expenses of
approximately RMB1.0 million, in advertising expenses of approximately RMB3.2 million, in
salaries and staff-related expenses of approximately RMB0.1 million , in exhibition expenses of
approximately RMB2.2 million and in miscellaneous selling and distribution expenses of
approximately RMB1.1 million.
In Q2 08, advertising expenses increased by approximately RMB3.2 million due mainly to
increasing amortization of sponsorship fees.
Our selling and distribution expenses increased by approximately RMB17.1 million or 54.2%
from approximately RMB31.6 million in 1H 07 to approximately RMB48.7 million in 1H 08. The
increase was in line with the expansion of our distribution network and our strategy to increase
marketing efforts and to build brand awareness.
(b) Administrative expenses
Our administrative expenses increased by approximately RMB10.4 million or 119.8% from
approximately RMB8.6 million in Q2 07 to approximately RMB19.0 million in Q2 08.
The major increase was due to the share of IPO expenses of approximately RMB5.5 million.
The Company was listed in SGX on 18 April 2008. In compliance with FRS32, we had written off
part of the common IPO expenses to current period based on a certain formula which the
directors are of the view which will provide a reasonable split between funds raising exercise
and listing exercise.
Apart from the share of IPO expenses, other increase was due mainly to increases in salaries
and staff-related expenses of approximately RMB1.4 million, in traveling and entertainment
expenses of approximately RMB0.9 million, in exchange loss of approximately RMB1.3 million
and in general office and administrative expenses of approximately RMB1.3 million.
In Q2 08, salaries and staff-related expenses increased by approximately RMB1.4 million due
mainly to an increase in social security fees, in compliance with the social welfare measures
required by the Chinese government for the workers, and the inclusion of salaries of the
Company commencing from the date of listing.
In Q2 08, exchange loss increased by approximately RMB1.3 million mainly arising from
conversions of Singapore dollars to Renminbi on remittances of our IPO proceeds to PRC.
Our administrative expenses increased by approximately RMB13.0 million or 89.7% from
approximately RMB14.6 million in 1H 07 to approximately RMB27.6 million in 1H 08. The
increase was due mainly to the share of IPO expenses and increases in salaries and staffrelated
expenses, traveling and entertainment expenses, exchange loss and other general
office and administrative expenses.
(c) Finance costs
Our finance costs increased by approximately RMB86,000 or 28.0% from approximately
RMB307,000 in Q2 07 to approximately RMB393,000 in Q2 08 and increased by approximately
RMB190,000 or 33.3% from approximately RMB570,000 in 1H 07 to approximately RMB760,000
in 1H 08. Our finance costs increased due mainly to an increase in interest expenses as our
average short-term bank loans increased.
(d) Income tax expenses
Our income tax expenses increased by approximately RMB8.3 million or 45.7% from
approximately RMB18.1 million in Q2 07 to approximately RMB26.4 million in Q2 08. The
increase was due mainly to the increase in profit before tax in Q2 08. Our income tax expenses
represent the effective tax rates of approximately 20.1% in Q2 07 (19.9% in 1H 07) and
approximately 19.8% in Q2 08 (19.1% in 1H 08). The applicable income tax rates for our two
wholly owned subsidiaries in PRC were 15.0% for Dapai (China) Bags Co., Ltd ("Dapai") and
27% for Quanzhou Dabao Light Industrial Co., Ltd ("Dabao") in Q2 07, and 15.0% for Dapai and
25% for Dabao in Q2 08.
Commentary
Our comments below include forward-looking statements involving known and unknown risks
(please refer to the section entitled "Risk Factors" in our prospectus dated 9 April 2008),
uncertainties and unforeseen circumstances that may cause our actual results to be materially
different from those contained in the forward-looking statements.
We expect that major events such as the upcoming 2008 Beijing Olympic Games, the 2010
Shanghai Expo and 2010 Guangzhou Asian Games, as well as the sustained growth of the PRC
economy which resulted in higher purchasing power will continue to underpin demand for our
products in the PRC. In view of these growth opportunities, we will continue to focus on our
product development and network expansion, as well as enhancing our DAPAI brand value
through advertising and promotion, particularly on TV media.
On 15 July 2008, our first TV commercials had been launched on Hunan Satellite TV Channel.
Following this, on 1 August 2008, the same TV commercials had also been launched on Anhui
Satellite TV Channel. We intend to advertise through another two major TV channels, namely
Liaoning Satellite TV Channel and CCTV5, during third and fourth quarters of 2008. We
anticipate that after TV advertisements, our DAPAI brand visibility will be increased and our
DAPAI brand image will be further strengthened.
We will continue to leverage on various forms of advertising avenues to grow our DAPAI brand
value and market share. We have signed agreements for sponsoring the China gymnastics
team in the upcoming Olympic Games 2008, and the 2007 – 2008 China Women's' National
Basketball Tournament.
We introduced luggage to the mass market in September 2007 through our existing distribution
network used in distributing our backpacks, and have successfully sold approximately 782,000
units in Q1 08 and 845,000 units in Q2 08. We intend to continue to use our existing distribution
network to expand our product offering by including a wider range of luggage. By tapping on our
existing extensive distribution network in China, we are in the position to increase our sales of
luggage.