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Eight Years’ Effort Promises A Successful Transformation of Hucais in 2021. Digital Printing as Its Main Force of Growth

GPMA Editor team

May 28, 2021

In the much-publicized transformation process of Hucais in recent years, 2019 was a year of special significance.

On October 30 in 2019, Hucais held a grand celebration of its 30th anniversary. As the founder and chairman, Chen Chengwen delivered a speech, reviewing the 30 years that Hucais has gone through and looking forward to the next 30 years.

According to Chen's plan for the three business segments of Hucais, in the future, the medium and high-end packaging and printing business will focus on on-demand printing, zero inventory, and will feature the customizable and intelligent services. The on-demand publishing and printing business will feature on-demand publishing and continuous edition with the printing threshold being one book, and the largest e-book library in China will be built. As for the personalized image business, Hucais will provide C2M personalized services as well as the experiences for whole-house customization.

Chen pointed out that if the goals of the three business segments can be achieved, Hucais will grow into an international company, becoming a significant one in the industry.

 

On May 20, 2019, Hucais released its new image product brand, Simoo, in Shenzhen, Guangdong Province.

Simoo has redefined the target customers of the personalized image business of Hucais, focusing on providing customized image services for women in their 20s, 30s and 40s in different life stages from marriage, pregnancy to baby birth, etc. It also relies on the model of "intelligent factory + large platform + big data" to build an image business ecology with the elements of photographers, make-up artists, studios and consumers, implementing the separation of products and shooting process and overturning the operation mode of traditional studios.

At the release conference of Simoo, Chen elaborated on the goal of "Let printing enter thousands of households", the dream of becoming a company that is worth RMB 10 billion, the new brand positioning of Simoo and the image business ecology that he hoped to build.

His speech reflected the confidence and determination of the accelerating development of personalized image business in Hucais.

 

2019 was also the year that the on-demand publishing and printing business in Hucais became profitable for the first time. Although there was not much profit, it was an important landmark in the transformation process that Hucais had been determined to undertake.

In the future-oriented business layout of Hucais, personalized image business and on-demand publishing and printing business are the main parts in the transformation of Hucais.

Years of continuous investment and planning have injected vitality into the two major business segments in 2019.

If there are no surprises, 2020 is likely to be a turning point in the transformation of Hucais - a shift from continued investment to the beginning of harvest.

However, the unanticipated pandemic brought an unexpected shock to the personalized image business and on-demand publishing and printing business of Hucais.

What is Chen’s view on the sudden setback to the emerging business in Hucais with the impact of the pandemic? Will his determination to transform Hucais be shaken? His latest thoughts on the transformation and future development of Hucais will answer these questions.

 

 

Hucais in 2020: Traditional Business Grows and Emerging Business Declines

 

 

On April 29, 2021, Hucais released its annual report for 2020.

Under the impact of the pandemic, the revenue of Hucais grew by 6.53% year-on-year to RMB 1.401 billion. The net profit attributable to the parent company ("net profit") was RMB -124 million, RMB 23.033 million less than that in 2019.

In terms of the products, cigarette packs, folding carton and laser packaging material products that belong to the traditional packaging business segment performed well.

Among them, revenue from cigarette pack products increased by 19.66% year-on-year to RMB 494 million. With the cigarette pack market in adjustment in 2020 and most companies' revenue declining, Hucais’s performance was remarkable.

Revenue from laser packaging materials reached RMB 146 million, up 33.09% year-on-year. It was the largest increase among all types of products.

Revenue from folding carton products was RMB 387 million, up 5.57% year-on-year.

In other words, all these three products of the traditional packaging business segment in Hucais achieved positive year-on-year growth in 2020. Together, the three achieved revenue of RMB 1.027 billion, an increase of 15.51% year-on-year, with an incremental contribution of RMB 138 million.

Hucais's revenue by product category in 2020 (Unit: RMB 10,000)

The growth in traditional business set off the decline in emerging business.

 

In 2020, Hucais's revenue from publishing and printing was RMB 217 million, a decrease of 14.30% year-on-year, and revenue from image was RMB 52,460,800, a decrease of 37.97% year-on-year.

In the emerging business segment, only customized packaging products with the smallest base achieved positive growth, with a year-on-year increase of 25.90% to RMB 67,881,800.

The three categories of products in the emerging business segment achieved combined revenue of RMB 338 million, a decrease of 13.88% year-on-year.

In terms of net profit, the on-demand publishing and printing business, which was profitable for the first time in 2019, posted a loss again, while the loss of the personalized image business expanded due to the decline in revenue.

As the parent companies of the two emerging business segments, Guangdong Hucais Cloud Printing Co., Ltd. and Guangdong Hucais Image Co., Ltd. reported net profits of RMB -26.662 million and RMB -91.697 million, respectively, for a total loss of RMB 118 million.

Also affected by the pandemic, the traditional business showed good growth resilience, while the emerging business showed relative fragility and was the main reason for the annual loss in Hucais.

Will this stark contrast shake the determination and confidence of Hucais for its transformation?

This does not seem to be a problem at all for Chen.

He said the decline in the emerging business was mainly due to the short-term impact of the pandemic. In the long run, the emerging business can burst out with growth potential that is unmatched by the traditional business.

In fact, Chen has long anticipated the possible impact on the emerging business.

On the first day of work after the Chinese New Year in 2020, facing the pressure brought by the sharp drop in orders, Chen comforted the head of the image business department, saying that the pandemic was something that the whole world did not anticipate, and that it was not only Hucais that faced difficulties. He said that they should focus on what changes might take place in the future, as he always said that it was the best of times and also the worst of times, and that things may turn out to be favorable to them in the future.

In Chen's view, the impact of the pandemic on Hucais can only be considered short-term. What is more important is that Hucais has a clear understanding of its goals.

Just like what Hucais has been practicing all these years, Chen believes that the future must be the era of industrial internet, and that the traditional industry should also keep pace with the times and embrace industrial internet. Therefore, Hucais's strategy is to firmly transform from traditional packaging and printing to on-demand printing, personalized image and customized packaging based on the industrial internet.

He said: “We will firmly adhere to this prospect.”

 

Hucais in 2021: Eight years’ Effort for A Successful Transformation

 

On December 31, 2020, Chen delivered a New Year's speech to all the employees of Hucais, with the title being “Grasp the Certainty in the Uncertainty of the Future”.

Chen’s speech reflected his confidence in the prospect of Hucais’s transformation, and he pointed out that the "more favorable" changes for Hucais have appeared.

This is partly because the unexpected impact of the pandemic on a wide range of industries has led customers to re-examine and rethink their inventories.

For instance, the impact of the pandemic has led to a large backlog of inventory in liquor companies. This has also led to a significant increase in awareness of on-demand printing in liquor companies, with on-demand production gradually becoming the consensus.

In the after-school training industry, some institutions printed the teaching materials in advance at the end of 2019 and planned to use them after the Spring Festival. However, the market stagnation caused by the pandemic made a large number of these materials useless. This further reinforced the customers' perception of the "Hucais Model".

On the other hand, even the image business, which had experienced a significant decline in revenue, saw favorable changes in the face of the pandemic.

Chen said that the pandemic has made it increasingly difficult for traditional studios to attract customers, and the existing business model is unsustainable, so more and more studios choose to cooperate with Hucais and join the Simoo platform to reduce customer acquisition and production costs.

So far, Simoo has attracted a number of studios, mainly from the Pearl River Delta region.

Perhaps it is these "more favorable" changes to the emerging business of Hucais that make Chen confident about the development of Hucais in the post-pandemic era.

According to him, “the pandemic has changed everyone's behavior and made more people realize that the future of printing should be industrial internet-based on-demand printing. In the long run, the pandemic will definitely bring momentum to Hucais's transformation.”

It seems that the "long run" Chen mentioned is not very far away for Hucais.

According to the annual plan just announced, Hucais's revenue is expected to increase significantly in 2021. The three emerging businesses of on-demand publishing and printing, personalized image and customized packaging, which are mainly based on digital printing, will be the main force of growth.

Talking about the growth potential of the emerging business, Chen said that after keeping laying the foundation for so many years from 2013, the time of rapid growth for these businesses should come now.

How has Hucais’s emerging business really come along during these eight years of investment?

From 2013, the year of the official launch of the emerging business, to 2020 before the pandemic outbreak, Hucais's revenue from emerging businesses has grown steadily.

The revenue from emerging business in 2013 was RMB 5,161,800, and the year-on-year growth rate in 2014 and 2015 was as high as 233.20% and 369.10%, making the revenue of the two years reach RMB 17,199,300 and RMB 80,681,200, respectively.

From 2016 to 2018, with the rise of the base, the growth rate began to go down, but still reached 89.36%, 41.90% and 66.65% respectively, while the absolute value of revenue exceeded RMB 100 million, RMB 200 million and RMB 300 million, reaching RMB 153 million, RMB 217 million and RMB 361 million respectively.

In 2019, Hucais’s emerging business revenue reached RMB 392 million, with a year-on-year growth rate of 8.51%, dropping below 10%, but the on-demand publishing and printing business achieved a historic profit.

In 2020, revenue from emerging businesses declined for the first time under the impact of the pandemic, falling to RMB 338 million, down 13.88% year-on-year.

Hucais's revenue from emerging businesses (Unit: RMB 10,000)

Chen pointed out that in 2021, Hucais will continue to uphold the development philosophy of customer-centered and market demand-oriented, and enhance the quality, cost and efficiency awareness of all staff in order to achieve greater growth.

There is no doubt that once the annual revenue target is finally reached, 2021 will be a successful year for Hucais's transformation.

 

Accelerated Transformation: Hucais’s Perseverance and Change

 

Although Hucais is affected by the pandemic, its determination to promote the transformation not only did not waver but became firmer.

Relative to the short-term impact of the pandemic on revenue, Chen is more concerned about some of the core issues related to the transformation. For example, how to improve the industrial internet platform and how to promote the construction of intelligent factory.

Although in the view of many people, Hucais has been in the forefront of the industry in the intelligent construction, Chen thinks that it has not done enough.

According to Chen, Hucais had set a target for one of its factories: when it reached RMB 100 million revenue, it needed 100 people; when it reached RMB 500 million, it still needed 100 people. But now when it reaches more than RMB 200 million, it needs 130 people.

Through Chen’s speech, one can get the message that while Hucais continues to adhere to its transformation goals and promote the construction of industrial internet and smart factory, it is also undergoing changes.

On March 22 this year, Hucais released a message on its WeChat account, congratulating Taishan Beer for completing over RMB 600 million of equity financing.

Tai Shan Beer was acquired by Hucais in 2000. This financing is the first time that Taishan Beer has opened up its equity to private capital after joining Hucais.

Chen pointed out that this financing can facilitate Taishan Beer's next stage of development.

However, over the past years, both Taishan Beer and Hucais have been very cautious in terms of foreign capital.

Even though it has been listed on the New OTC Market for more than five years, Hucais still maintains a high concentration of equity.

The opening of Taishan Beer to private capital for equity financing this time has undoubtedly sent a signal that Chen's attitude toward foreign capital has changed.

In his book Transformation: On-Demand Printing in the Era of Industry 4.0, Chen mentioned that he had been advised to split the traditional business from the emerging business, to promote the more profitable traditional business to go public, and to discard the new business if its profits were not satisfying.

In the book, he refers to it as “a shortsighted view”.

When asked whether Hucais has any relevant capital operation plan in the future, Chen said that different decisions will be made at different times, and that Hucais will adjust its strategy based on the market environment and other factors in order to achieve better development.

Chen also mentioned that Hucais’s emerging business shares the production resources with its traditional business. In the future, based on the market environment and development plan, Hucais may also consider other capital operation modes.

Having withstood the impact of the pandemic, Hucais becomes more determined to transform, promising a successful year. At the same time, it is quietly changing and becoming more open to all possibilities, as long as they are conducive to the goal of transformation.