Event
On September 28, the company announced its intention to transfer 100% equity in two wholly-owned subsidiaries, Qingsong Chemical and Hong Kong Longsheng. After the transfer, the company will completely divest the turpentine deep processing business. On October 11, the company announced that it planned to issue a total of 702 million to 101 million A shares (including capital) to Lin Shida, a specific target, and the total amount of funds raised was 32million to 450 million yuan (including capital). After deducting the issuance costs, all of them will be used to supplement liquidity and repay bank loans. Lin Shida is currently the company's largest shareholder Hong Kong North Bell (9.17%) of the 100% controlling shareholder, after the completion of the issue is expected to hold a total of 20.27% to 24.04% of the company's shares, becoming the actual controller of the company.
Northbell has the largest sales scale, and the local cosmetics processing leader Northbell is the largest local processing enterprise. From the perspective of sales scale, in 2021, the sales scale of domestic processing enterprises only exceeded 2 billion yuan for Kosmith (China) and Northbell, while the sales scale of the second echelon of Koma and Yingtri in South Korea was only about 1 billion yuan. It is mainly because the pattern of China's cosmetics contract manufacturing industry is relatively scattered, and mainly small and medium-sized enterprises. Among them, Kosmith (China) has the highest market share in 2018 with a market share of 5.26%, while Northbell has a market share of 3.65%.
Enhance customer stickiness by giving priority to ODM and supplemented by OEM
Compared with OEM, in the stages of formulation determination and process design, ODM constantly communicates with customers and provides them with targeted product solutions. In the product manufacturing stage, according to the product plan, the company selects suppliers, formulates production plans and processes, and carries out mass production.
Therefore, the ODM business not only participates in the production process, but also participates in the research and development of product formulation, with higher added value. The company is dominated by ODM and supplemented by OEM, and the ODM business is expected to account for more than 70% of Northbell's products. The company is deeply involved in all aspects of customer product research and development to production, so customers are more sticky.
Short-term performance is under pressure, focusing on long-term marginal improvement
As the raw materials of the company account for about 77% of the total cost, the main raw materials of facial masks and wipes are natural cellulose fiber, polyester fiber and viscose fiber, and the main raw materials of skin care products are glycerin, propylene glycol, natural oils, functional extracts, flavors and so on. Among them, the prices of polyester fiber, propylene glycol and flavor are greatly affected by the price of oil. Oil prices have been on the rise since 2021, so corporate costs have been greatly affected. And as the downstream customers were affected by the epidemic and macroeconomic factors, the order volume was less than expected, the product price was adjusted, and the gross profit margin decreased to 13% (the previous value was 26%). However, it is expected that with the gradual stabilization of upstream raw material prices and the completion of more new customer orders downstream, as well as the divestiture of the company's turpentine deep processing business, the company's long-term performance will be gradually repaired.
Investment suggestion
The company is affected by the epidemic in the short term, and its performance is under pressure. However, as a leading domestic processing enterprise, Northbell has established barriers in R & D, production capacity, customers and other aspects through years of investment. After the implementation of the new cosmetics regulations, the market share of Longtou, which has high production quality, is expected to further increase. We estimate that in 2022-2024, the company's EPS will be 0.08 Universe 0.26 0.22 yuan, and the corresponding PE will be 75-23-26 times.
Maintain a "buy" rating.
Risk hint
Upstream raw material price fluctuation; production capacity is not as expected; epidemic situation is repeated and so on.