Event

The company released the third quarter report of 2022: revenue of 1.11 billion yuan / + 18.1%, net profit of 0.54 million yuan /-36.2%, net profit of 104 million yuan / + 46.7%; net cash flow of operating activities of 141 million yuan / + 166.3% (basic)

Quarter-by-quarter, 22Q3's revenue is 231 million yuan /-13.1%, the net profit returned to the mother is-0.13 billion yuan /-147.0%, deducting the non-return net profit 21 million yuan / + 4.1%; the net cash flow of operating activities is-50 million yuan / 36 million yuan in the same period last year, and EPS (basic) is-0.09 yuan.

Brief comment

22Q3's revenue is under pressure under the influence of weak overseas demand, and its performance is significantly affected by non-recurring profits and losses. 22Q3's revenue is 231 million yuan /-13.1%, and its net profit is-13 million yuan /-147.0%. The slight decline in revenue growth is mainly affected by the weakness of overseas markets, and the return net profit is significantly affected by non-recurrent profit and loss. 22Q3's "fair value change / profit and loss of transactional financial assets" is-44 million yuan, which is expected to be mainly related to changes in exchange rate contracts, with non-recurrent profit and loss totaling-35 million yuan. The non-return net profit is 21 million yuan / + 4.1%, achieving a small increase in the decline in income.

The gross profit margin of 22Q3 has increased, and the rate of various expenses has increased. 22Q3's gross margin 22.2%/+5.7PCT, the increase in gross margin is mainly due to the increase in the proportion of high gross margin products such as star canopies, as well as freight included in sales costs (expected to affect about 4PCT). The rates of sales, management and R & D expenses are 7.55%/+7.0PCT, 6.98%/+1.6PCT and 6.03% respectively. The net interest rate of 1.1PCT 21Q3 22Q3 is-4.6% (net interest rate is 10.6%), deducting the non-parent net interest rate 9.1%/+1.3PCT.

The company is mainly engaged in overseas OEM of sunshade products and outdoor furniture, paying attention to product design and research and development. the hot sale of large single product "Star canopy" leads to the increase of 2021 and 22H1 revenue. The company's two core product categories: 1) sunshade products (84% of revenue in 21 years) including awnings and umbrellas; 2) outdoor leisure furniture (15%) including pet houses, outdoor furniture and drying utensils. The company pays attention to product research and design, and a number of products have won the innovative Design Award and Red Dot Award of the International Expo in Cologne, Germany.

The new product "Star canopy" was launched in 2020, and the sales volume has increased rapidly since it was put on the market. The revenue of the single category has reached more than 200 million yuan in 2021 and is expected to reach 560 million yuan in 2023, which will still be the main driver of the company's growth.

Profit forecast: the company's revenue from 2022 to 2024 is expected to be 14.1,17.0 and 2.03 billion yuan, up 13.7%, 20.3% and 19.8%, and the net profit is 0.69,1.18 and 142 million yuan, up-35.8%, 70.5% and 20.3% over the same period last year, corresponding to 41,24 and 20 times of PE. (closing price on 2022-11-1).

Zhejiang Zhengte is mainly engaged in overseas contract manufacturing of sunshade products and outdoor leisure furniture, accounting for 94% of overseas market revenue in 21 years. The company's two core product categories: 1) shading products (accounting for 84% of revenue in 21 years) mainly include awnings and umbrellas. Awning products include folding awning, car canopy, outdoor awning, etc., used for outdoor leisure and car parking. Sunshade umbrellas include straight umbrellas, hanging umbrellas, etc., which are used for sunshade in outdoor leisure places such as courtyards, beaches and hotels.

2) Outdoor leisure furniture (15% of income in 21 years) mainly includes pet houses, outdoor furniture and drying utensils. The pet house includes pet cages and fences, and outdoor furniture includes hammocks, swings, garden tables and chairs, etc.

Zhejiang Zhengte has maintained rapid revenue growth in the past three years, and its performance is obviously affected by the fluctuation of profit margin. The company's operating income increased from 670 million yuan in 2019 to 1.24 billion yuan in 2021, with a rapid growth of 35.6% CAGR 22H1 and revenue of 880 million yuan / + 31.0%. The company's 2019-21 net profit was 41.6,80.2 and 107.6 million yuan respectively, compared with-13.0%, + 92.9% and + 34.1% respectively. The company's net profit of deducting non-return in 2019-21 was 48.1,80.2,76.8 million yuan respectively, which was + 8.6%, + 66.8% and-4.2% respectively compared with the same period last year.

The revenue of sunshade products accelerates, and the revenue of leisure furniture fluctuates greatly. From 2019 to 2021, the operating income of sunshade products was 4.8,6.5,970 million yuan respectively, which was + 16.0%, + 34.4% and + 49.1% respectively compared with the same period last year. The income of outdoor leisure furniture from 2019 to 2021 was 1.8,1.2 and 180 million yuan, which was-32.3%, 47.8% and-4.1% compared with the same period last year. Sunshade products are the core products of the company, accounting for 84% of Prida in 21 years, and 15% of leisure furniture. The gross profit margin of sunshade products and outdoor leisure furniture is obviously affected by the price fluctuation of raw materials. In 2021, the gross profit margin of sunshade products and outdoor leisure furniture is 24.5% and 26.1% respectively.

The products are mainly exported, the proportion of export is more than 90%, and the region is concentrated in North America and Europe. North American sales increased from 420 million yuan in 2019 to 630 million yuan in 2021, with CAGR of 22.8%. Sales in Europe increased from 130 million yuan in 2019 to 360 million yuan in 2021, with a faster growth rate in 2021, mainly due to the company's efforts to expand the European market since 2021. Proportionally, the share of sales in North America remained above 50%, declining in 2021 due to the rapid growth of the European market, which expanded from 20.9% in 2019 to 31.1% in 2021.

From the point of view of customers, Zhejiang Zhengte customer resources are high-quality, is Walmart Inc, Costco Wholesale Corp and other head supermarket chain suppliers. The company's main customers include large chain supermarkets, brands, e-commerce platforms and so on. The top five customers of the company are Walmart Inc, American JEC, Costco Wholesale Corp, American BA and French JJA, accounting for 26.6%, 7.7%, 5.4%, 4.1% and 3.4% of the company's revenue in the past 21 years, respectively. The top five customers of the company in 2019-21 accounted for 64%, 68% and 51% respectively, and the customer structure was more concentrated. The decline in the concentration of the top five customers in the first five years of 2021 compared with 2020 is mainly due to the decrease in the contribution income of major customers JEC and BA in 2021 compared with the same period last year.

In addition to the contract manufacturing business, the company has its own brand "Abba Patio" to sell in North America, Europe and other regions through the Internet e-commerce platform. The mode of operation is to authorize Sihai Shangzhou, a cross-border e-commerce service provider, and its overseas subsidiary, BA, to fully represent the company's own brand of cross-border e-commerce business. In 2021, the independent brand is about 220 million yuan, accounting for 18% of the company's revenue.

Pay attention to product design and research and development, large single "Star canopy" hot sales led to 2021 and 22H1 revenue growth. The company pays attention to product research and design, and a number of products have won the innovative Design Award and Red Dot Award of the International Expo in Cologne, Germany. Strong product development and design ability is conducive to the company to strengthen the binding with core customers, at the same time conducive to market development. For example, the new product "Star canopy", which won the red dot award, was launched in 2020 (a metal gallery with 100 leaves at the top, which can be put away in the open air). Since it was put on the market at the beginning of 2020, sales have increased rapidly, and the single category has achieved more than 200 million yuan in revenue in 2021 / 22% of the revenue. It is expected that 2022 will still be the main driver of the company's growth.

Excluding the impact of changes in accounting standards, the company's gross profit margin and expense rate remain relatively stable under the comparable caliber, and the company's net interest rate is relatively stable. In terms of profitability, the company's 2019-22H1 annual gross profit margin was 27.5%, 27.1%, 20.2% and 19.6% respectively, of which the marked decline in 21 years was mainly due to the implementation of the new revenue criteria from January 2020, and the transportation expenses originally included in sales expenses were classified as operating costs. The net interest rates of the company from 2019 to 22H1 are 6.0%, 8.9%, 8.7% and 7.1%, respectively. In terms of expense rate, from 2019 to 2021, the overall expense rate of the company according to the comparable caliber in 2019 was 16.7%, 18.3% and 16.4%, respectively, and the overall expense rate remained stable. Among them, the company's sales, management and R & D expenditure rates in 2021 were 3.9%, 4.4% and 3.3%, respectively.

Profit forecast: the company's revenue from 2022 to 2024 is expected to be 14.1,17.0 and 2.03 billion yuan, an increase of 13.7%, 20.3% and 19.8%, respectively. The net profit of returning home is 0.69,1.18 and 142 million yuan, an increase of-35.8%, 70.5% and 20.3% over the same period last year, corresponding to 41,24,20 times of PE.

Rating. (closing price on 2022-11-1).

Risk Tips:

Exchange rate fluctuation risk: the company's export business takes US dollars as the main settlement currency, and more than 90% of the company's revenue comes from European and American markets. Large exchange rate fluctuations have a significant impact on the company's orders, revenue and profits.

Raw material price fluctuation risk: direct materials account for more than 70% of the company's main business costs, and mainly steel, aluminum and other commodities, affected by the international economic situation, oil prices and other factors, raw material price fluctuations have a significant impact on the company's gross profit margin. According to estimates, it is estimated that when the company's average raw material prices rise by 5%, 10% and 15%, the gross profit margin will decrease by 2.8,5.6 and 8.4PCT (assuming no price increase). If the price is raised to the customer, the gross profit margin will fall by less than the estimated value.

Risk of trade friction: some of the company's products were taxed by the United States in 2018-19. If trade friction occurs in the future, there is a risk that the tariff policy will change.