Company profile

The company was founded in 2016 and specializes in contract sales of rubber and plastic consumer goods such as sports, outdoor activities, home life, and health care, including roller skates, bottle caps, airbrush cases, etc. Downstream customers are large consumer goods channels/brands such as Decathlon, Ikea, and Wagner. 2021-2023Q3 achieved revenue of 9.5, 9.3, and 580 million yuan, +37.2%/-26.1% year-on-year, and net profit margins of 13.8%, 14.1%, and 14.0%. The company's IPO was listed in March '23, with an issue price of 2,513 yuan and a financing amount of 700 million yuan, mainly for the construction of production capacity bases and R&D centers.

Investment logic

Small-batch+multi-varieties+platform system, comprehensive management & service capabilities are continuously optimized. The company's products mainly present the characteristics of “multiple categories, small batches, and customization”, and adopt a “market-based production” production model to advance from OEM to ODM model, increasing added value & stickiness of major customers. The share of ODM revenue increased 3.2pct from 21.4% in '19 to 24.7% in 22H1. The gross margin of ODM during the 19-22H1 period was 3-7pct higher than that of OEM. The company has an excellent injection molding process foundation and established a leading edge in technology. The R&D cost rate of 4-6% is among the highest among comparable companies.

Concentrating resources to serve major customers, the top five revenue accounts for 89.3% of the top 22. Domestic/overseas revenue in 2022 was $21/7.2 billion respectively, accounting for 23%/77% of revenue, respectively. Affected by downstream inventory removal and economic slowdown, the revenue growth rate of major global household or sporting goods retailers such as Ikea, Decathlon, and Wagner has slowed since '22, driving a phased slowdown in revenue growth for upstream light industry export chain companies. However, starting from 23H2, on the revenue side, a quarterly recovery trend has begun.

Driven by growth: Expanding categories opens up incremental space, and Southeast Asia's layout leads the industry. 1) Expanding categories: The IPO production capacity was changed to increase the production capacity of 10 million pieces of hardware and household goods, deepening IKEA cooperation, and the Malay layout to ensure supply chain security and deepening customer binding. 2) Expand customers & increase market share:

Expanding new retail & brand customers. On the basis of high-quality customers in the early stages, cooperation with MERCADONA, Helen, and Ruixing continues to deepen. In the medium term, growth is driven by seizing the share of small and medium-sized manufacturers based on strong quality and stability.

Profit forecasts, valuations, and ratings

Using the price-earnings ratio relative valuation method, we predict that the company's 23-25 revenue will be 7.8/9.5/1.16 billion yuan, -16%/+22%, net profit of 1.1/1.5/180 million yuan, net profit of 1.1/1.5/180 million yuan, -15%/+31%/+19% of the year. The current stock price corresponding to the company's PE in 24-25 is 19/16X respectively. Considering that the company's product stability and personalized service capabilities help customers grow, the hardware category is expected to open up incremental space, and overall growth and profitability are better than those of peer companies. The first coverage gave the company a valuation of 23XPE in 2024, corresponding to a target price of 30.5 yuan, and a “buy” rating.

Risk warning

Risk of excessive customer concentration; risk of exchange rate fluctuations; risk of fluctuations in raw material prices; lifting of the ban on restricted shares.