Founded in 1997, the Group is a large-scale integrated building and home improvement materials and furniture supplier and interior design and engineering services supplier in China. The Group mainly sells and distributes construction and home improvement materials and furniture, and provides interior design and engineering services to customers. As of April 30, 2015, the Group's product portfolio includes more than 10,000 products, covering (i) building materials (such as steel, pipes, pipes, wires and cables, cement and construction mortars and glass); (ii) home improvement materials (such as ceramic series, electrical materials, floor and door panels, and bathroom products); and (iii) furniture (such as lamps, furniture, fabricators and furniture), and interior design, property renovation and decoration, selection and purchase of specified or building materials for home decoration and home decoration The implementation side of the project provides customers with opinions and services, and provides customers with a “one-stop” shopping experience.
We recommend speculative purchasing of this stock.
Company advantages
(1) A well-known supplier of building and home improvement materials and furniture with a good track record in Meizhou. According to Orui's report at the end of February 2015, the number of home improvement materials and furniture sales stores it operates ranked 1st and 3rd in Meizhou City and Guangdong Province by category; (2) a one-stop supplier of property renovation and home improvement materials and furniture, with a product portfolio covering all important aspects of general construction and home improvement materials and furniture, covering all important aspects of general construction, property decoration or home decoration, covering all important aspects of general construction, property decoration or home decoration (3) (3); Efficient supplier management, with a diverse supplier portfolio, including Manufacturers, brand owners and trading companies of building and home improvement materials and furniture give the group a clear competitive advantage in product supply and pricing; (4) strategic market layout in a rapidly developing economy. The group mainly operates in Meizhou City and surrounding areas in Guangdong Province. These areas are relatively affluent regions of China.
Industry Overview
The building materials market relies on the representation of the Chinese real estate market. The total area of buildings under construction and the total area of newly built buildings in China recorded steady growth. According to data from the National Bureau of Statistics of China, the total area of buildings under construction reached about 11.3 billion square meters in 2013, and the compound annual growth rate from 2009 to 2013 was about 17.7%. At the same time, the total area of newly built buildings in 2014 was about 4.2 billion square meters, and the compound annual growth rate from 2009 to 2014 was about 10.9%.
According to Eurorui's data, in 2014, Guangdong Province was the largest manufacturing base for home decoration materials and furniture products in China, accounting for about 40% of China's total production value. It was followed closely by Shandong, Zhejiang, and Henan provinces. At the same time, Guangdong Province has always been the largest furniture export province. In 2014, the total size of the home improvement materials and furniture market in Guangdong Province reached about RMB 94 billion, and the compound annual growth rate from 2010 to 2014 was about 11.0%. As disposable income continues to rise and further uses its advantage as a leading home improvement materials and furniture production base, the retail market for home improvement materials and furniture products in Guangdong Province is expected to grow steadily. According to Eurorui's data, the total size of the home improvement materials and furniture market in Guangdong Province is expected to reach about RMB 140.8 billion in 2019, with a compound annual growth rate of about 8.4% from 2015 to 2019.
In 2014, the total output value of the decoration industry in Guangdong Province was about RMB 127.7 billion, and the compound annual growth rate from 2010 to 2014 was about 16.7%. According to Euromonitor's data, by the end of 2019, the total output value of the renovation industry in Guangdong Province is expected to reach about RMB 1967 billion, and the compound annual growth rate from 2015 to 2019 is about 9.0%. The value of the decoration industry is greatly influenced by the development of the real estate market in Guangdong. Continued urbanization, increased consumers' disposable income, and service and product upgrades may drive future growth in the output value of the decoration industry in Guangdong Province.
Profitability and financial figures
Based on historical records for the past 3 years, the group's revenue increased from RMB 253.5 million in fiscal year 2012 to RMB 333.8 million in fiscal year 2014, with a compound annual growth rate of 14.8%; net profit increased from RMB 28.5 million in fiscal year 2012 to RMB 42.0 million in fiscal year 2014, with a compound annual growth rate of 21.4%. The increase in earnings was due to a steady increase in product sales and distribution and a significant increase in revenue from the provision of services. Changes in gross margin are mainly due to changes in business and product combinations with different gross margins. The gross margin of sales and distribution of product operations was relatively stable, and the gross margin of home improvement materials declined, mainly due to changes in the market atmosphere that reduced demand for luxury high-end products in 2014, which led to a decline in sales of high-priced products such as sanitary ware.
Fundraising purposes
HK$89.9 million (calculated at the sale price of HK$1.35 per share) of the proceeds from this capital raising will be used for the following purposes: 51.0% or approximately HK$45.8 million will be used to establish a flagship mall in Meijiang District of Meizhou City; 35.0% or approximately HK$31.5 million will be used to establish a new logistics center; 4.0%, or about HK$3.6 million, will be used to renovate the Meijiangmen store to enhance brand influence and reputation; 3.5% or approximately HK$3.1 million will be used in Meihuazhoushi, Meixian opened A retail store; 1.5% or approximately HK$1.4 million will be used to upgrade the information system to improve overall efficiency and optimize operational processes; and 5.0% or approximately HK$4.5 million will be used for working capital and other general corporate purposes.
valuations
The Group did not provide a net profit estimate for the 2015 fiscal year. Based on the net profit of RMB 42.0 million for the 2014 fiscal year, the historical price-earnings ratio was approximately 7.5-11.0 times. There are certainly peers that sell home improvement products (such as Hangbiao Holdings (1190.hk)) and furniture (such as Minhua Holdings (1999.hk)) on the market, but there are few one-stop companies such as groups, so it is difficult to directly compare them. Since the group's revenue sources are concentrated in Meizhou, its future performance will also be influenced by local economic growth and the real estate market. In 2014, the number of urban residents in Meizhou reached about 2.03 million, and the urbanization rate reached 46.9%. According to data from the Meizhou Municipal Bureau of Statistics, the total disposable income of urban residents in Meizhou in 2013 was about RMB 20,737, and the provincial average was about RMB 3,3090. In 2014, the total area of buildings under construction in Meizhou was about 9.60 million square meters, an increase of 31% over the previous year; the total area of newly built buildings was about 2.29 million square meters, an increase of 40.7% over the year. As can be seen from the above figures, the development of Meizhou, where the group is located, lags relatively behind the level of the province. Conversely, its room for growth is also high. However, there is no guarantee of this growth. In addition, the risk of concentrating too much on the development of a single city is also high, but its valuation is not expensive. We suggest speculative licensing of this stock.
Risk Factors
(1) The loss of major customers or a sharp drop in their purchase amount may have a significant adverse impact on business and prospects; (2) the business is concentrated in Meizhou and surrounding areas in Guangdong Province, which is highly susceptible to any adverse economic or market development in such areas; (3) the process of providing interior design and engineering services to customers relies on subcontractors to undertake projects, and the relevant subcontractors may fail to meet the relevant requirements; (4) failure to obtain, renew or retain licences, permits or approvals, or may affect the ability to operate or expand the business (); 5) May be difficult to recruit and retain qualified employees and labor costs It is adversely affected by the increase; (6) It is susceptible to any adverse development in the Chinese real estate market.