Written above: From proxy operations to independent teams, from single categories to all categories, companies continue to experiment, invest, and continue to innovate in the wave of independent brands going overseas, and the scale of cross-border e-commerce rapidly exploded and became the second growth curve. 1) The team is fully motivated and the management mechanism is perfect; 2) The supply chain is perfect, with factories in Vietnam and warehouses in the US, with significant cost advantages; 3) Amazon's stable basic market, and the rapid growth of TIKTOK contributes to the growth of all categories and prices, covering all aspects of terminal demand. Currently, the company's market share is still low. With intensive product cultivation and market share growth, the rise in cross-border e-commerce is expected to continue.
Industry: Overseas e-commerce is rising, and Chinese companies are steadily seizing overseas opportunities. According to Emarketer, global e-commerce sales increased from $1.16 trillion to $5.08 trillion (CAGR of 23.5%) in 2014-2021, and the US e-commerce penetration rate is expected to rise from 15.6% to 20.6% in 2023-2027, and the market size will reach $1.72 trillion (5-year CAGR of 10.6%). Chinese enterprises are seizing opportunities and actively developing cross-border e-commerce. The scale of China's cross-border e-commerce exports increased from 2.2 to 6.6 trillion yuan in 2017-2022 (CAGR is 25.1%), and is expected to reach 10.4 trillion yuan in 2025 (16.4% CAGR in 2022).
Home is an important segmented track, and the reshaping of the platform pattern creates opportunities. In 2022, the household category accounted for 13.0% and 17.4% of China's cross-border B2B/B2C e-commerce exports, respectively. Currently, the online penetration rate of global home consumption is only 17.7%. The future will benefit from intergenerational changes in the consumer population and the development of informatization, and the growth of cross-border home e-commerce will have strong momentum. Furthermore, with their advantages in manufacturing, scale, capital, etc., core participants are more likely to seize share and become a major core seller. Looking at the platform pattern, along with the increase in overseas traffic costs and the rapid development of e-commerce platforms, the entry of new platforms such as TIKTOK and TEMU is expected to reshape the competitive landscape and bring opportunities for rapid development for emerging players.
The group is deeply empowered, with excellent cost control and leading front-end sales. In 2018-2022, the cross-border e-commerce scale of Henglin Co., Ltd. increased from 0.2 billion yuan to 1.04 billion yuan. The outstanding performance was mainly due to the group's deep empowering team, highly motivated talents (joint shareholding and benefit sharing with subsidiary management teams), and seizing market share through cost-effective products with the entire industry chain layout. At present, the company has been deeply integrated into the new trend of cross-border e-commerce development. 1) Laying out overseas production bases (evading tariffs) and local warehousing in the US (reducing warehousing and logistics costs and enhancing after-sales service), the cost advantages continue to stand out; 2) accelerate the multi-brand, multi-platform, and multi-category layout to create a solid foundation for future high growth.
Profit forecast: The net profit for 2023-2025 is expected to be 4.39, 5.42, and 647 million yuan (+24.5%, 23.3%, 19.4% year-on-year, respectively), and the corresponding PE is 14.1X, 11.4X, and 9.6X. Yongyi Co., Ltd., Ingenious Home, and Lego Co., Ltd., which are also leading light industry export segments, are selected as comparable companies. The average valuation of comparable companies in 2024 is 12.2X, maintaining a “buy” rating.
Risk warning: Cross-border e-commerce development falls short of expectations, overseas macroeconomics falls short of expectations, risk of impairment of goodwill.