The “cross-border export+consumer electronics” boom is on the rise, and the company's e-commerce business is developing rapidly. In 2018, Xinghui Precision acquired Zebao Technology to enter the cross track of e-commerce and consumer electronics exports. With excellent control capabilities throughout the entire process from product selection, development, warehousing, logistics to sales, e-commerce business revenue and profits have grown rapidly since 2019. We believe that the company's 20Q4 will continue to benefit from the high level of prosperity and rapid development of the industry, and the increase brought about by the 2021-22 category expansion is also worth looking forward to. We expect the company's EPS in 2020-2022 to be 0.78, 1.12, 1.47 yuan, and the target price is 26.88 yuan, covering the “buy” rating for the first time.
The first A-share listed home hardware company, the merger and acquisition of Zebao into cross-border e-commerce Starhui Precision was founded in 1994. It specializes in precision metal links. It is the first company in China's home hardware industry to land on A-shares. It is a supplier to well-known overseas companies such as Oupai, Sophia, and Kohler.
In 2018, it acquired 100% of Zebao Technology's shares and entered the cross-border export e-commerce industry. Zebao owns six proprietary brands, RAVPower, TaoTronics, VAVA, Sable, Anjou, and Hootoo. Among them, the top 4 brands ranked among the top 100 cross-border brands exported by Amazon to open stores globally in 2019. In 2019, the company achieved revenue and net profit of 3,499 million yuan and 150 million yuan respectively, of which the cross-border e-commerce business contributed 2,830 million yuan and 150 million yuan.
Enjoying the “Consumer Electronics+E-commerce Acceleration” dividend, e-commerce business revenue and Guimu's net profit have grown rapidly. The development of the company's traditional home hardware business has slowed in recent years. Beginning in 2019, revenue showed a negative year-on-year growth trend. Guimu's net profit recorded continuous losses, mainly due to weak demand and rising upstream raw material prices due to declining macroeconomic growth; revenue from cross-border e-commerce exports and net profit of Guimu continued to rise. CAGR reached 31.2% and 98.6% respectively in 2016-2019. Thanks to the high growth of the global consumer electronics industry and the accelerated increase in overseas e-commerce penetration in the context of the pandemic, the company's cross-border e-commerce business revenue and net profit are expected to continue to grow rapidly.
Excellent strategy combined with a light operating model to create excellent operational efficiency
Zebao strives for excellence in product selection, and rapidly iterates products through accurate grasping and analysis of dynamic market requirements. The number of core SKUs remains around 200; in terms of development, the organic combination of the three models of leading development, introduction development, and independent development not only guarantees the efficiency of product development, but also builds the company's medium- to long-term core competitiveness through the creation of independent technology; the warehousing, logistics, and sales aspects rely on the Amazon platform. The model is lightweight and quick to start. Through this series of operational combos, Zebao built a high efficiency barrier. In 2019, Zebao Technology's inventory turnover ratio was 3.3 times, slightly lower than leading Anker Innovation; the accounts receivable turnover rate reached 20.2 times, leading the industry.
Taking advantage of the industry's momentum, cross-border e-commerce business is developing rapidly. The consumer electronics industry, which has been given a “buy” rating for the first time, is highly prosperous, and the penetration rate of overseas e-commerce has increased rapidly. The cross-border e-commerce export e-commerce business is expected to continue to develop rapidly with excellent operational efficiency. We expect net profit attributable to the mother to reach 2,709 million yuan in 2020-2022, and the corresponding EPS will be 0.78, 1.12, and 1.47 yuan respectively. Referring to the comparable company Wind in 2021, an average of 30.61 x PE was expected. Considering that there is still a certain gap between the business scale and the leaders, and that independent research and development capabilities are relatively weak, the company was given 24x PE in 2021, with a corresponding target price of 26.88 yuan. For the first time, a purchase rating was given.
Risk warning: poor overseas consumption; risk of exchange rate fluctuations; risk of commission withdrawal from third party platforms.