Sunmart Holdings – Sweet Smell of Success
The next time you hold up a bottle of perfume or cologne, especially those that come with a spray pump, remember the name Sunmart.
 Founded by Mr Sun Bingzhong, a former school principal who started a small-scale operation making spray pumps for bottles during the 1980s, Sunmart Holdings is now China's leading maker of cosmetics, health supplements and pharmaceutical packaging.
The group sells its products to over 2,000 customers, which includes established names like Shiseido, Avon, and L’Oreal in more than 80 countries in Asia Pacific, North and South America, Europe and Africa.
It manufactures spray pumps, aluminium cans and plastic bottles used in the packaging of fast-moving consumer goods like perfumes, facial wash, shampoos and make-up. Its products are also in the packaging of disinfectants, detergents, hand wash liquids and antiseptics.
The bulk or 90% of Sunmart’s output are in cosmetics with both health supplement and pharmaceuticals each accounting for 5% each of total sales, though that product mix is expected to change in future as the group plans to expand its reach into the medical packaging sector.
The group exports 60% of its output and sells the rest in China. Repeat orders account for 80% of its total sales.
According to its chief financial officer, Ho Soo Hui, while China had accounted for 37.3% of the group’s sales in FY2007, Sunmart is looking to ramp up its production capacity to cater for robust demand from overseas markets.
“Our key customers sometimes to put orders six months in advance for bigger shipments. While our products may not be the cheapest, they are of higher reliability and quality than our competitors.”
 “We also plough back about the equivalent of 5% in sales into research and development (R&D) for new products. We have currently several patents, including those for pumps used for pharmaceuticals application.”
Mr Ho pointed out that Sunmart also enjoys the benefits from economies of scale, which allows the group to negotiate more favourable terms with raw material suppliers, mostly within China to keep unit costs low.
He added that in fact demand for its products is so strong that Sunmart is looking to raise it production capacity by two to three times between now and 2010. The expansion in two phases will see output raised to 1.2 billion spray pumps, 70 million plastic bottles and 15 million aluminium cans per year
Phase one of its expansion has started and will see a new plant with an additional production capacity of 200 million units running by the first half of 2008. Phase Two will be completed by end FY2009.
 The new production lines will also include a clean room facility for medical packaging products, which will help Sunmart tap into new market segments by expanding into the packaging of medical and pharmaceutical products.
Mr. Sun, who is the Executive Chairman and CEO of Sunmart Holdings, said: “We have seen a very encouraging increase in demand in America market, despite the overall US economic slowdown, which shows that Sunmart is still competitive in the international market. The group secured more orders and enjoyed better margins because of better branding efforts and more intense marketing campaigns undertaken to emphasize the high quality of Sunmart products.”
In terms of contributions by geographical markets, the North & South American markets saw the fastest rate of growth for FY2007, and accounted for 17.5% of the total Group’s revenue of RMB260.9 million. The other key markets include Asia Pacific (27.2%), Europe (16%) and Africa (2%).
Mr Sun noted that while China has seen rising standards of living over the past few years, income levels have yet to peak and there is still large potential for further consumer spending due to changing lifestyles, which will drive further demand for Sunmart's products
Mr Ho said, “We are also less likely to be affected by the slowdown in the US economy as our products like shampoos, washing liquids are generally recession-proof. In fact, a recession may even be good for us as we may see more overseas customers looking for ways to reduce packaging costs.”
He pointed out that despite rising raw material and labour costs in China as well as the weaker greenback – Sunmart’s exports are US dollar denominated – the group has still been able to maintain its margins.
 Andreas Chan, a research analyst at SB! E2-Capital pointed out that since spray pumps make up a small fraction of packaging costs and given the fact that Sunmart’s products are usually used in higher-end cosmetics and toiletries, the group should be able to pass on any higher costs to its customers.
In fact, Sunmart actually saw an increase in gross margin to 31% for FY2007 on the back of a 10.2% increase in group revenue to RMB260.8 million. As a result of the higher sales and improved gross margins, net profit grew by 12.1% to RMB53.8 million.
The group’s Earning per Share (EPS) rose 67.5% from 16 cents to 26.8 cents, while Net Asset Value (NAV) per share increased from 15.1 cents to 63.2 cents.
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