Huazhang Technology Announces 2016/17 Annual Results, Revenue Increased by 27.1%

Result Highlights

• Revenue increased by 27.1% to approximately RMB416.0 million
• Gross profit and net profit reached approximately RMB91.6 million and RMB30.4 million, respectively, representing a y-o-y increase of 13.5% and 12.1%, respectively
• Non-GAAP profit for the year amounted to approximately RMB38.0 million, representing an increase of 29.4%
• Contracts signed totaled approximately RMB644.3 million, representing a y-o-y increase of 52.2%
• Conducted a number of acquisitions to transform into an all-encompassing service provider for the papermaking industry
• Acquired a leading distributors of headbox in the PRC and a logistic company
• Signed strategic agreement with a Taiwanese environmental protection company, thereby officially commencing the solid waste treatment business

Financial Highlights

HONG KONG, CHINA - Media OutReach - 6 September 2017 - Huazhang Technology Holding Limited ("Huazhang" and its subsidiaries, together, the "Group", stock code: 1673) announced its annual results for the year ended 30 June 2017 ("the year under review") yesterday. The Group's revenue for the year under review amounted to approximately RMB416.0 million (the year ended 30 June 2016: RMB327.3 million), representing an increase of 27.1%. Profit attributable to owners of the parent increased by approximately 8.1% to RMB30.6 million (the year ended 30 June 2016: RMB28.3 million). Non-GAAP profit for the year amounted to approximately RMB38.0 million, representing an increase of 29.4%. The Board recommends the payment of a final dividend of 2.4 HK cents per share.

Business Review

During the year under review, taking the tailwind of the continued recovering papermaking industry, Huazhang Technology united efforts from everyone in the Company and achieved encouraging results, guided by the new policy of "New Huazhang, New Development, New Dream". For the year ended 30 June 2017, the Group recorded a turnover and profit of approximately RMB416.0 million and RMB30.4 million, respectively, representing a year-on-year growth of approximately 27.1% and 12.1%, respectively. The contracts signed by the Group totaled approximately RMB644.3 million, representing an increase of approximately 52.2% over the same period in 2016. Among the signed contracts, contracts of project contracting services for the papermaking industry amounted to RMB437.9 million, representing a year-on-year increase of 84.5%.

During the year under review, revenue from sales of industrial automation systems decreased by approximately 14.8% to approximately RMB77.1 million. This was primarily due to the decrease in export sales through trading agency. The gross profit margin increased from approximately 29.7% to approximately 34.2%. Revenue from project contracting services increased significantly by approximately 56.8% to approximately RMB235.5 million for the year under review. The gross profit margin decreased to approximately 15.2%, mainly due to the increase in financial components and decrease in profit margin of a project. Revenue from sales of sludge and wastewater treatment business increased by approximately 4.4% to approximately RMB48.6 million, which is primarily due to the increase in the sales of wastewater treatment products. The gross profit margin increased from approximately 24.2% to approximately 31.2%. Revenue from after-sales and other services increased by approximately 36.7% to approximately RMB54.8 million. Such increase was primarily attributable to the increase in sales of the electrical components and equipment and increase in after-sales services. The gross profit margin for after sales and other services remained stable at 26.1% (the same period 2016: 26.2%).

Accelerated Merger and Acquisition for Core Parts

During the year under review, by acquiring upstream companies providing core parts, the Group helped papermaking companies realize auto control. In May 2017, the Group acquired distributors of Chinese headbox Hangzhou MCN Paper Tech Co., Ltd. and Hangzhou Haorong Technology Co., Ltd., as well as the benefit of the contracts entered into by Sunplus Industrial Co., Limited in relation to its sales of headbox business which are partly unperformed. Acquisition of companies providing core parts helps the Group carry out the plan of replacing imported parts with Chinese proprietary core parts, achieve economies of scale, and command more control in integration at technical level, thereby helping the Group realize the Chinese Dream in high-end.

Distribution Expansion of Industry Service Outlet

During the year under review, the Group expanded distribution of service outlet to provide complete value-added services for the papermaking industry. In May 2017, in order to strength its capability of after-sale and maintenance services, the Group announced the intention to acquire Wuxi Refine Technology Co,. Ltd.  In June 2017, the Group announced the acquisition of all issued share capital and shareholders' loan of Fu An 777 Logistics Limited ("777 Logistics"). 777 Logistics mainly engages in logistics and warehouse business, which is capable of providing bonded logistics services of raw materials, equipment and supplies for papermaking companies. This acquisition helped the Group's establish a one-stop integrated service platform through further integration of internal resources and promote all-encompassing services to papermaking companies.

Furthermore, in March 2017, the Group entered into an Exclusive Cooperation Agreement with a Taiwanese environmental protection company Kun Sheng Machine Co., Ltd., thereby introducing the refused waste derived fuel technology into China's papermaking industry. The strategic cooperation further strengthened the Group's competitiveness in green manufacturing technology and product in the papermaking industry. Regarding the overseas business, in the second half of 2016, in support of the national "One Belt, One Road" strategy, the Group established the overseas business division to actively explore overseas markets. In the past year, staffs of overseas business division have visited the Middle East and Southeast Asian countries as well as visited the paper-making enterprises in such areas. At present, the Group has explored a number of potential customers and negotiated the business opportunities.

Looking ahead,Mr. Zhu Gen Rong, the chairman of Huazhang Technology Holding Limited, said, "We expect the papermaking industry will continue its bullish momentum from the past year. To address the opportunities and challenges of this industry, we will take proactive actions. First of all, our industrial automation system is equipped with functions for real-time collection and monitoring of production information, which is conducive to the Group in playing an important role in the process of pushing forward the papermaking industry's 'Made in China 2025'. Moreover, The Group will continue to seek proper acquisition opportunities to enhance services for the entire industry chain of the papermaking industry and provide professional, all-encompassing services. At last, we will make the best use of our existing advantage in client sources to strengthen comprehensive services for papermaking plants. In future, we will move forward courageously in the new direction of 'New Huazhang, New Development, New Dream' and deliver sustainable business growth for creating more values for all parties."

About Huazhang Technology Holding Limited

Huazhang Technology Holding Limited is a comprehensive service provider for the papermakingindustry. The group is principally engaged in research and development, manufacture and sale of industrial automation systems and sludge treatment products, and already has been in the paper industrial for over 16 years. The Group industrial automation systems and sludge treatment products are custom-built in accordance with the specifications and requirements provided by customers. Moreover, the Group is also engaged in the provision of after-sales and other services to our existing customers. The group strives to become a leading solution provider and comprehensive service provider for the papermaking industry in China.