Investment highlight

Covering Zhejiang Zhengte (001238) for the first time, it gives the industry a rating of outperforming industry, with a target price of 29.00 yuan, corresponding to 29 times Phand E in 2023. The company is a leading supplier of outdoor furniture and supplies in China. Under the rise of outdoor sports, the global outdoor furniture and supplies industry continues to grow steadily. Zhejiang Zhengte has strong genes in the manufacturing and R & D of sunshade products and outdoor leisure products. Best-selling products emerge in endlessly and independent brands develop rapidly. We judge that the company's performance is expected to maintain rapid growth in the future. The reasons are as follows:

The global outdoor furniture and supplies industry is growing steadily, with domestic enterprises taking the lead in manufacturing. 1) demand side: the global market for sunshade products is nearly US $10 billion in 2022, and the market for outdoor leisure furniture is US $47.3 billion. We expect that driven by the development of e-commerce channels, the rise of outdoor sports and category upgrading, the size of the sunshade products and outdoor leisure home industry is expected to increase to US $130.1 billion and 62.56 billion respectively in 2023-2027, corresponding to 6.6% CAGR 4.5% in 2017. 2) supply side: domestic enterprises have a leading manufacturing advantage and are actively developing and developing independent brands to catch up with overseas enterprises. We believe that the share of domestic enterprises is expected to continue to increase in the future.

R & D + channel + manufacturing to build core competitiveness. 1) R & D leadership: continuous increase in R & D investment, tamping technology leadership, best-selling new products emerge in endlessly, repeatedly won industry awards. 2) multiple channels:

Walmart Inc, Costco Wholesale Corp and other high-quality retail channel major customers solid channel basic, brand customers, e-commerce and other multiple channels to explore market segments. 3) Manufacturing-oriented: digital, automated and standardized production improves manufacturing efficiency and ensures product quality, and the return rate of e-commerce is low.

The product pushes through the old and brings forth the new, and the channel advances steadily. 1) Product end: the company has a strong ability to create best-selling items, product design innovation, star canopy and other best-selling items with both practicality and beauty, widely praised by the market, achieve rapid sales growth, and promote the rapid optimization of business structure. 2) Channel end:

Through the development of independent brands through cross-border e-commerce, "Abba Patio" brand sell-off sales, "Sorara" brand independent operation go hand in hand, effectively control the whole business value chain. 3) production side: the fund-raising project to expand the annual production capacity of 900000 outdoor leisure products, we believe that the capacity bottleneck is expected to break through and open the medium-term growth ceiling.

What is the biggest difference between us and the market? We believe that the market underestimates the company's ability to build continuous best-selling products and achieve sustained and rapid growth through the continuous launch of best-selling new products.

Potential catalyst: the launch of best-selling new products and the high sales of e-commerce self-owned brands.

Profit forecast and valuation

We estimate that the company's 2023 EPS and CAGR will be 0.99 yuan / 1.21 yuan and 50.7% respectively in 2024.

Corresponding to the current share price of 23 times / 19 times earnings. For the first time, it covers the rating of "outperforming industry" and the target price of 29.00 yuan, corresponding to the price-to-earnings ratio of 29 times earnings in 2023 and 24 times earnings in 2024, which is 26% higher than the current stock price.

Risk

Raw material prices fluctuated sharply; new product development fell short of expectations; international trade policies and exchange rates changed sharply.