What is the gap between domestic and foreign packaging and printing industry?

- Aug 02, 2019-

What is the gap between domestic and foreign packaging and printing industry?

As we all know, the packaging and printing industry in our country is still at a growing stage compared with that in developed countries abroad.But where is the specific gap?What causes it?I'm afraid few people can say for sure.

To this end, the author has collected a research report on China Merchants Securities for domestic enterprises to refer to.The report analyzes the differences between domestic and foreign packaging and printing industries in demand and supply, and the differences between leading enterprises in receivables and cash flow.I hope it can bring some inspiration to the industry.

Supply and demand pattern: international maturity v.s domestic growth period

In recent years, the global packaging and printing industry has entered a mature period of stable development, with a growth rate basically equal to the average growth rate of the world economy.According to statistics, the market size of the global packaging and printing industry in 2017 is 851 billion US dollars, up 1.4% year on year, close to the natural economic growth rate of developed economies.

However, the growth rate of China's packaging and printing industry is far higher than the global industry average.In 2017, the main business income of China's packaging and printing industry (excluding the sub-industry of packaging machinery) was 1,104.837 billion yuan, with a compound annual growth rate of 6.3% from 2013 to 2017, including 9.2% year-on-year growth in 2017 and 2016.

There are also many differences between the supply and demand pattern of China's packaging and printing industry and that of the international packaging and printing industry on the basis of commonness:

On the demand side, the difference between Chinese market and international market mainly lies in the difference between increment and demand structure.

On the supply side, the difference between the Chinese market and the international market is mainly reflected in the competition pattern and the service capability of leading enterprises.

Demand Side: China's Per Capita Packaging Consumption is Low, Express Demand Drive Still Strong

China's per capita packaging consumption is obviously lower than the global level, and there is still much room for improvement in the future.From the perspective of total volume, although the scale of China's packaging and printing market is growing rapidly, the per capita consumption is only 12 USD/year, which still lags far behind that of major countries and regions in the world.

Even considering objective factors such as price and population density, the ceiling of China's packaging and printing industry is far from being reached.The market scale of China's packaging and printing industry is expected to expand, and the supply and demand structure is also expected to continue to upgrade.

From the perspective of packaging materials, the demand structure for packaging materials in China and the world is generally similar, with plastic packaging and paper packaging accounting for nearly 40% and 30% respectively.

However, from the point of use, especially in storage, transportation and display sales packages, the differences between China and the world are quite significant:

1. Storage, transportation and packaging

In developed countries, due to the high degree of standardization of storage and transportation packaging and the fast start-up, reviewing the business structures of leading enterprises such as International Paper and American International Packaging, storage and transportation packaging are the main driving forces for their business growth.

In China, the manufacture and export of industrial products used to be the main engine driving the growth of storage, transportation and packaging demand, but since 2011, the main momentum of its growth has switched to express packaging demand formed by the development of e-commerce business.

Since 2011, there has been a "blowout growth" in China's over-scale express delivery business.In 2010, China's express delivery volume above designated size was 2.339 billion pieces, and by 2017 it will grow to 40.6 billion pieces, with a compound annual growth rate of more than 50%.

According to statistics, about 80% of the total express business is online shopping express, 43% of which uses paper packing boxes. Assuming that the average weight of a single express is 0.5kg, the corresponding packing paper market size is 6.89 million tons and the plastic packaging market size is 16.024 billion pieces.According to the average annual growth of e-commerce express delivery volume of 20%, the annual demand for new wrapping paper is 1.378 million tons, and the demand for new plastic packaging is 3.205 billion pieces.

2. display sales packaging

The downstream demand for display sales packaging is mainly consumer goods, and China's tobacco packaging accounts for a high proportion, which is the main difference in the structure of consumer goods packaging needs at home and abroad.Food and beverage packaging is the most important part of consumer goods packaging in the world and China.According to statistics:

In 2018, the global packaging demand for consumer goods totaled 4.5 trillion pieces, of which 3.3 trillion pieces were needed for food and beverage, accounting for 73%.

China's consumer goods packaging demand is about 1.1 trillion pieces, of which food and beverage packaging demand accounts for about 55%;

China's demand for tobacco packaging is significantly higher than the global average, with 419.6 billion pieces of tobacco packaging in 2018, accounting for half of the global tobacco packaging market.

The fast change of consumer goods packaging category and design is another big difference between China's consumer goods packaging and the global market.Compared with the mature international market, China's consumer goods market is developing rapidly and has put forward new requirements for the design of display and sales packages.

At the same time, in the constantly changing consumer goods market, consumer goods enterprises need not only to create timeless classic products, but also to be able to create "explosive" single products that can ignite the excitement of the market.These single items have a short life cycle and are in great demand in the short term, which puts forward new requirements for appearance design and production efficiency.

On the supply side, the concentration of domestic industries is low, and the industrial chain extension service capability is weak.

On the supply side, the difference between the Chinese market and the international market is mainly reflected in the competition pattern and the service capability of leading enterprises.

1. Competition Pattern

China's packaging and printing industry is scattered and the market concentration is low.Take the paper packaging industry as an example. The CR4 of the paper packaging industry in the United States reached 70%, the CR2 of Australia and Taiwan reached 90% and 62% respectively, while the CR10 of China's paper packaging industry was less than 5%.

At present, China's packaging and printing industry is still in a state of decentralized competition. The total number of enterprises above designated size in the packaging and printing industry increased from 4,321 in 2013 to 5,693 in 2017.Small and medium-sized packaging enterprises are the main participants in the market, while a few leading enterprises do not occupy a significant dominant position in the packaging and printing market.

2. Service Ability

China's domestic printing and packaging industry, which is dominated by small and medium-sized enterprises, is still dominated by packaging production, and its industrial chain extension service capability is relatively weak.Looking at the global packaging and printing market, the proportion of packaging production in its market size is about 73.7%, and the market size of packaging design, market research, material testing and equipment maintenance account for more than a quarter.

For the downstream display and sales packaging manufacturers of consumer goods, it is difficult to stand out from the fierce competition in the dispersed market with only production capacity. The comprehensive service ability to provide overall packaging solutions is the key to establish a moat and improve profitability.

International leading enterprises in packaging and printing industries, such as Tetra Pak, nefab and US International Packaging, are all positioned as packaging solution providers, extending from packaging production and processing at the low end of the value chain to design, research and service.

However, at present, the domestic printing and packaging industry, which is dominated by small and medium-sized enterprises, is still dominated by the relatively low value-added link of packaging processing and production, while the industrial chain extension service capabilities such as packaging design are relatively weak.

Benchmarking Leader: Difference in Business Format Causes Cash Flow of Domestic Enterprises to be Lower than that of International Enterprises

Compared with the performance of international printing and packaging leaders, domestic enterprises have a big gap in receivables, income and net profit.

1. Receivables

The scale of domestic packaging and printing enterprises is relatively small and the market is scattered, making them more dependent on a single major customer than international leading enterprises.In contrast, due to the high market concentration in the international packaging and printing market, large downstream customers have a narrow range of choices. A leading packaging and printing enterprise usually serves several large customers at the same time.

From the perspective of receivables turnover, the good commercial format of foreign printing and packaging industry has also brought more stable cash flow to international leaders.In the past ten years (or since its listing), the turnover days of accounts receivable of leading enterprises in the domestic packaging and printing industry are significantly higher than those of international enterprises.

Taking 2017 data as an example, average collection period of International Paper, US Packaging Company and WestRock has an average of 44.14 days, while the average turnover days of accounts receivable of Yutong Technology, Meiyingsen, Hexing Packaging and Origen are 116.42 days.

The shorter average collection period makes the capital utilization efficiency of international leading enterprises higher than that of domestic friends, while the high cash flow enables international leading enterprises to have higher bargaining power in raw material procurement and other links, reducing the cost of supply chain financing.

2. Cash content of income and net profit

Judging from the two indicators of operating income cash content (ratio of operating net cash flow to operating income) and profit cash content (ratio of operating net cash flow to net profit), the cash collection capacity of domestic leading enterprises in packaging and printing industry is not as good as that of international leading enterprises.

From 2015 to 2017, with the exception of Orruijin, the cash content of operating income of Meiyingsen, Yutong Technology and Hexing Packaging were lower than that of international leading enterprises.From the point of view of profit cash content, the gap between domestic enterprises and international leading enterprises is more obvious.

The average profit cash content of RKT/WRK, IP and PCA is 2.16, while that of the four leading domestic enterprises is only 0.97.

As can be seen from the above, compared with the international packaging and printing industry, China's packaging and printing industry is still in the growth stage: the per capita packaging consumption is low, the industrial chain extension service ability is weak, the enterprise's voice is not big, and the cash flow is not strong.

Learning from the development experience of leading enterprises in the international packaging and printing industry, under the background of the overall dispersion of the domestic market and the acceleration of the industry's liquidation, domestic enterprises should develop in the direction of providing integrated services, enhancing product design capabilities, and close-to-close capacity layout.

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