2023 IN RETROSPECT

Reflecting on 2023, the Chinese economy demonstrated notable adaptability and resilience amidst global economic fluctuations and domestic policy reforms. At the National People’s Congress in March, former Premier Li Keqiang set an annual GDP growth target of 5%, the lowest since China started setting economic growth targets in 1994. By the second quarter, weakened global demand for Chinese products, combined with a sluggish domestic real estate market, led to insufficient domestic demand. Some business struggled, and the momentum for economic recovery began to wane.

Despite these challenges, China still achieved a 5.2% growth rate by the end of the fourth quarter. However, in the first year following the easing of pandemic lockdown controls, households and businesses hoped to compensate for lost time by increasing economic activities, but instead faced a year of unstable consumer confidence and mounting challenges. Kang Yi, the head of the National Bureau of Statistics, pointed out at a press conference that although the 5.2% growth rate exceeded the global average and was among the highest globally, the fluctuations in consumer confidence and uneven economic recovery remained significant issues.

The domestic tobacco industry experienced divergence under the influence of multiple economic and market factors. In the high-end tobacco market, sales unexpectedly declined, reversing the trend of rapid growth over the past five years, with continuous price decreases. Despite various regulatory measures implemented by the industry and enterprises, the market situation had not improved significantly by the end of the year, with increased instances of price inversion for premium products, adding uncertainty to future market development.

At the same time, the market for high-priced cigarettes and premium brands showed overall weakness this year, reflecting a trend of downgrading in consumption. The rise of standard-grade cigarettes was a bright spot during the economic recovery period. With the transformation of China’s economic policies placing greater emphasis on the role of consumption, particularly in fostering a new dual-circulation development pattern, consumption has become the main driver of domestic economic growth. This shift provided continuous market expansion opportunities for more cost-effective standard-grade cigarettes, although the uncertainty in the premium cigarette market also cast a shadow over the future of the industry. In this highly competitive market, industry participants need to closely monitor market dynamics and adapt flexibly to maintain their competitiveness.

For the year ended 31 December 2023, the Group’s revenue was HK$155.39 million and the loss attributable to owners of the Company was HK$41.18 million, representing a decrease of 20.1% and 22.5% respectively over last year.

BUSINESS REVIEW

Over the past year, the Group’s tobacco packaging and materials business has been significantly impacted by weak market demand. In response to this challenge, the Company swiftly implemented multiple measures, including optimizing management strategies, which significantly enhanced and stabilized core business of the Company.

Due to the overall contraction in the consumer market, however, following the pandemic and a decline in demand from core clients in the Cigarette Packaging Business, the Company’s overall performance still declined. The annual net profit declined year-over-year, primarily due to reduced revenue, intensified market competition squeezing profit margins of our products, and increased costs resulting from rising raw material prices.

In the Environmental Treatment Business, the Group continued to partake in development projects in Huizhou this year, including the construction of drainage pipe network and river ecological maintenance.

Currently, domestic local tax revenue has notably decreased, especially the significant reduction in land concession fees, which has severely impacted local government income. Land concession fees have always been an important source of financial revenue for local governments, with a large portion of local fiscal income coming from these fees and related real estate taxes. However, due to long-term changes in real estate market expectations and declining public enthusiasm for real estate investments, there has been a decrease in both demand and transaction volumes in the real estate market. This change has directly led to a sharp decline in income from land concession fees, thereby having a significant negative impact on the financial health of local governments, inhibiting the sustainable development of the local economy and the provision of public services.

Due to the weakened fiscal payment capability of local governments, the internal approval process for fiscal funds and the implementation time for payments have become more prolonged, increasing the operational financial pressure on the Company. Particularly, the delays in local government approval and payment processes have slowed the recovery of the Company’s accounts receivable, further exacerbating cash flow difficulties.

REFORMING VISION FORWARD

As we enter 2024, we will continue to uphold our core principles of sound management and creating value for our customers, and we are committed to making steady progress in building strengths in our core industries. Faced with the current challenging market environment, we will continue to adhere to our business objectives, ensure their achievement, and overcome difficulties.

We are well aware that the future may be fraught with adversities. To minimize losses, we will adopt a cautious strategy with the likes of thorough analysis of market dynamics and risk assessment in all strategic decisions to ensure that we can carefully address current challenges. Furthermore, we will tirelessly pursue the creation of long-term value, continuously exploring new growth opportunities for the overall benefit of the company and its shareholders. Throughout this process, we will consistently demonstrate corporate responsibility and determination to ensure the continuity and competitiveness of our business under various market conditions.