Summary of the report
Company overview
The company is a famous glasses manufacturer in China and Hong Kong, mainly through ODM and OEM business model to produce and sell all kinds of optical glasses frames and sunglasses. The company provides comprehensive customization services including: product design and development, raw material procurement, production, quality control, product packaging and delivery. The company focuses on the international market, the production of high-quality glasses products are sold to more than 36 countries in the world, its customers mainly come from the European market, accounting for more than 65% of the revenue. Since 2016, the company has carried out OBM business under the brand name miga. With its manufacturing in two production bases in Shenzhen and Jiangxi, the company has diversified its product portfolio, producing as many as 3200 kinds of optical glasses frames and sunglasses. The Hong Kong optical frame manufacturing market is highly fragmented, and the company ranks fifth among Hong Kong optical frame manufacturers and exporters in terms of 2017 earnings, with a market share of 3.3%.
FY2016-FY2018, the company's revenue is 318.0 million yuan, 362.8 million yuan and 421.1 million Hong Kong dollars respectively, and the gross profit margin is 27.4%, 25.9% and 23.0% respectively. The reason why the gross profit margin is declining year by year is that there are many alternative products in the domestic glasses frame market, and manufacturers have to lower the price, forcing Hengfa Optics to lower the product price. The decline in the average selling price will inevitably affect the gross profit margin. The adjusted net profit was 44.2 million, 32.3 million and 30.4 million respectively, and the net interest rate was 14.1%, 9.1% and 7.4% respectively.
Industry status and prospects
The export value of China's optical glasses frames increased from US $1.25 billion in 2014 to US $1.5 billion in 2018, CAGR3.9%. The export value of China's optical glasses frames is expected to reach 1.84 billion US dollars in 2019 and 3.9 per cent of CAGR in 2019-23.
Hong Kong's exports of optical glasses frames increased from US $960 million in 2014 to US $1.19 billion in 2018.
The export value of optical glasses frames is expected to be CAGR6.0%, from 2019 to 2023, mainly driven by the increasing demand for optical glasses frames in North America and Europe. The company is one of the top five optical frame manufacturers in Hong Kong, with an estimated market share of 3.3% in 2018.
Advantages and opportunities
The company has more than 30 years of experience in the eyewear industry and has a wide range of reliable and deep-rooted customers.
Has a strong glasses product design and development ability, can manufacture and deliver optical glasses frames and other high-quality glasses products for customers
The company sets strict quality control standards for the whole production process.
Weakness and risk
The degree of customer concentration is low, the number of suppliers of glasses products in the market is large, and the competition in the industry is fierce.
The company's business is mainly ODM and OEM, with relatively new brands and low awareness.
Europe accounts for a large share of sales revenue, and business performance is affected by local economic fluctuations.
Investment valuation
According to the IPO price (HK $1.20-HK $1.20), the company has a comprehensive diluted price-to-earnings ratio of 16.4x-19.7x in 2018 and a price-to-book ratio of 2.78x-3.00x in preparation for the examination. as the main enterprise of ODM/OEM, the valuation of the company is on the high side, so it is given a special rating of "5" to IPO.