Why are we optimistic about Xianggang Technology?
As the only listed company in the field of cosmetic packaging in China, the company occupies a leading position in the cosmetic packaging market. With the rise of "face economy" and "Internet celebrity economy", the domestic cosmetics market has accelerated in recent years. We believe that Xianggang Technology has been ploughing cosmetic packaging for many years, and is expected to benefit from the demand support brought by the high prosperity of the downstream cosmetic industry, accompanied by the rapid growth of the downstream cosmetic industry. After years of deep ploughing, Xianggang Technology has accumulated rich customer resources and established long-term and stable cooperative relations with more well-known customers at home and abroad. The company's main customers, Unilever and The Estee Lauder Companies Inc, are well-known enterprises in the daily chemical industry at home and abroad, with good performance and stable product demand, and the rapid development of major customers will continue to bring orders to the company. deep binding with major customers will provide support for the sustained and stable development of the company. In addition, the company raised 200 million yuan in 2019 through convertible bonds to invest in cosmetics contract manufacturing business, which is expected to become The Estee Lauder Companies Inc's first cosmetics contract manufacturer in China. This year, the company also acquired a 70% stake in Jiusu Technology to enter the cosmetics outsourcing market, expand the business territory, improve the company's comprehensive order-taking capacity, and build an integrated supply chain of outsourcing + insourcing + cosmetics contract manufacturing. We believe that the company's emerging business will complement and coordinate with the traditional business to seek new growth points for the company's performance, but also enhance the company's anti-risk ability and enhance the company's market competitiveness.
Main points:
The packaging printing industry and the cosmetics industry are getting better, and the company is looking forward to the development of the packaging printing industry, which is one of the most growing industries in the printing sub-industry in recent years, with a continuous rapid growth rate of 10% and 12%. With the continuous introduction of advanced technology and equipment and the continuous growth of demand in the downstream industry, the growth rate of the packaging and printing industry continues to be considerable.
With the continuous improvement of residents' living standards and the increasing requirements for personal appearance, the "beauty economy" begins to rise, and cosmetics consumption has gradually become the rigid demand of residents' daily life. As a result, the cosmetics market has ushered in a very strong growth. The scale of China's cosmetics and personal care market increased from 249.2 billion yuan in 2013 to 477.7 billion yuan in 2019, with an annualized compound growth rate of 11.5 percent. Retail sales of cosmetics above quota rose from 162.5 billion yuan in 2013 to 299.2 billion yuan in 2019, with an annualized compound growth rate of 10.7 percent, ranking second among all consumer categories. And with the improvement of consumers' consumption level and changes in consumption habits, it is expected that the cosmetics market will continue to improve, and the scale growth of the beauty care industry is expected to remain at 10% + in the next three years. We believe that thanks to the high demeanor of the packaging and printing industry and the cosmetics industry, the company has great potential for development in the long run.
The company is deeply bound with Unilever, the largest customer, and is expected to establish a cooperative relationship with the daily chemical giant Unilever through active contact with Unilever since 2006. At first, the products are promotional packaging and brochures. The product is relatively single. With the further deepening of the cooperation between the company and Unilever, the business scope and product range of the company's cooperation with Unilever have gradually increased. The cooperative products include Golden Textile, Momo, Qingyang, Chinese toothpaste, Lipton, Cuido, Menglong and many other well-known products. At present, the company has cooperated with Unilever for more than 10 years and formed a long-term and stable cooperative relationship. If Unilever chooses to replace a new supplier, it will have to pay a lot of time cost and running-in cost in the process of selecting and urging the supplier to meet its requirements, and the production of related series of products will be affected. thus adversely affecting the overall operation. Therefore, Unilever is unlikely to replace new suppliers in the future and will be deeply bound with the company for a long time, and Unilever's continued good demand will also bring the guarantee of orders for the company and ensure the long-term stable development of the company.
Traditional business moves forward steadily, and emerging business creates new growth points.
The company's three traditional main business-color box business, label business and brochures, billboards, tags and other main business development trend in recent years, the overall steady progress. The company raised 200 million yuan in 2019 through convertible bonds to invest in the cosmetics contract manufacturing business, and has been put into production in November 2019. The production capacity is expected to be gradually released within 6 years, and the production revenue is expected to reach 358 million in 2025. The company also acquired a 70% stake in Jiusu Technology this year, and its income is expected to grow at an annualized compound rate of 5.75% over the next five years. Thanks to the release of related demand during the epidemic, Jiusu Technology is expected to perform well this year.
Investment advice:
The company has been deeply engaged in the field of cosmetic packaging for many years, and is deeply bound with downstream high-quality customers. In the past two years, it has developed cosmetic contract manufacturing business and internal contracting business, and developed in coordination with outsourcing business. We are firmly optimistic about the medium-and long-term investment value of the company. We estimate that the net return profit of 2020 and 2021 will be 0.15, 0.24 and 0.44 million respectively, and the corresponding EPS will be 0.08, 0.12 and 0.22 respectively. The company's downstream cosmetics industry is booming, and deeply bound with high-quality customers, the growth prospect is promising, covering for the first time, giving a "buy" rating.
Risk hint
1) the competition in the industry has intensified. 2) the development of emerging business is not as expected.
