Star Hong Kong Media (01616.HK): 335 Million Yuan To Sell Textile Business

01616.HK issued a notice in August 13th. In August 13, 2019, the company entered into a sale and purchase agreement with the East Vietnam limited company. Accordingly, the company agreed to sell all the shares of the target group and all the shareholders to Dongyue Co., which costs about RMB 335 million yuan.

East Vietnam Limited is a Klc Holdings Ltd incorporated in the British Virgin Islands and is wholly owned by Liu Dong, chairman and executive director of the company. Dongyue Co., Ltd. is the main shareholder of the company, holding about 19.31% of the company's share.

The company's wholly owned Affiliated Companies, Power Fit Limited (Target Corp), is a Klc Holdings Ltd registered in the British Virgin Islands. The main business of Affiliated Companies is to sell textile products and provide textile products processing services. On the announcement date, the target group is composed of Power Fit Limited, Yin Shi Lai (Hongkong), Yin Shi Lai textile and Yin Shi Lai new materials.

The total amount of proceeds and net proceeds from the sale were about 335 million yuan and 334 million yuan respectively, of which 145 million yuan was offset by the sale of outstanding sales loans. The company intends to make about $145 million (a) of the net proceeds from the sale to repay the debts and liabilities of the group. And (b) about 1.88. billion for the group's business development and investment in the media business as well as the general working capital.

The announcement indicates that the group has followed the guidelines, adopted various measures and made relevant efforts to upgrade its textile business. Despite the fact that investment has been made, the profit level of the target group has continued to decline, and gross profit margin has dropped from 18.3% in 2016 to 13.1% in 2018, and a loss has been recorded since 2019. In contrast, the gross profit margin of group media business in 2018 was 37%. In view of the limited growth potential of textile business and the loss that the target group should account for in the first five months of 2019, the directors consider that the sale is a good opportunity for the group to achieve strategic transformation, which enables the group to redistribute its resources to return to higher media business and other investment opportunities (when the opportunity arises).