Yongyi Co., Ltd. is a leading enterprise in the seat industry and has mastered the core “support” technology.

Yongyi Co., Ltd. is a leading enterprise in the Chinese chair industry. It was founded in 2001 and focuses on providing the world's leading sitting health solutions. Supported by core supporting technology, the company has achieved outstanding achievements in innovative R&D, intelligent manufacturing and global sales, and is a national high-tech enterprise. Yongyi Co., Ltd. has five production bases and more than 5,000 employees. The product line covers office chairs, lift tables, massage chairs, sofas, etc., and has built a comprehensive seating solution. Yongyi's proud chair has been the number one seller in the world for three consecutive years, exported to 82 countries, centered on technological innovation and user experience, and strives to become a global leader in the field of sitting health. The company has been established for more than 20 years and has received many national awards, focusing on developing reputation protection for sedentary users. The core support technology system includes four product lines: active support, flexible support, adjustable support, and zoned support. Through innovative seat structures, it fully supports healthy sitting posture.

Office chairs are the main source of performance, stable export customers and great potential for domestic sales. Faced with disruptive factors such as rising raw material prices, the epidemic, and inventory fluctuations, the company relied on measures such as increasing market share and strengthening domestic sales to offset the impact of some of the adverse factors, and the year-on-year decline in revenue gradually narrowed. In terms of profit, due to falling raw material prices and the devaluation of the RMB, the company's gross margin increased 4.27 percentage points year-on-year in the first three quarters of 2023, reaching 23.07%, which is superior to revenue performance. It is expected that in the future, the decline in revenue will narrow further as customer demand releases, and the company's domestic and foreign sales growth prospects can be expected, catalyzed by factors such as increased revenue from independent brands, reduced pressure on raw materials, and the appreciation of the US dollar.

Leading companies benefited from increased concentration, and interest rate hikes slowed down and inventories gradually recovered. China's office chair industry is booming with the advantage of industrial clusters. In particular, the Anji region of Zhejiang has become the center of the seat industry, forming a strong regional brand “hometown of the Chinese chair industry”. China became the world's largest exporter of office chairs in 2022, accounting for 67% of the market share. The production cost of office chairs in China is low. From 2018 to 2021, the average annual growth rate of exports was 8%. Among export companies, Yongyi Co., Ltd. is the leading company, with market shares of 12% and 10% respectively in 2022. Yongyi Co., Ltd. increased its share of office chair exports from 9% to 11.5% between 2018 and 2022, consolidating its leading position in the market. The slowdown in the Federal Reserve's interest rate hike is expected to stimulate consumption, boost market sentiment, and ease inventory pressure.

The office chair market is undergoing a development path similar to smart toilets and functional sofas, transforming from traditional seats to functional seats. Despite the current low penetration rate, ergonomic office chairs attract consumers with their obvious advantages. The size of the office chair market has shown a steady upward trend in recent years, reaching 30.8 billion yuan in 2021, an increase of 16.2% over the previous year, reflecting the continued increase in demand for office chairs. With the increase in the number of enterprises and emphasis on the office environment, the office chair market has broad prospects for the future and has a good momentum of development. In this development trend, ergonomic office chairs are expected to play an increasingly important role in the field of office furniture. Furthermore, the penetration rate of health office products in China is expected to continue to increase. Although it is currently relatively low, demand for office environments and supplies in China is growing rapidly as social and economic development and health concerns increase. Although per capita consumption is relatively low, this also means that China has more room for growth in the field of healthy office supplies. Looking forward to the future, China is expected to gradually catch up with other countries, achieve more balanced and healthy development in the field of office health, and bring rich development opportunities to the industry.

E-commerce domestic sales data is impressive, and multiple domestic sales channels are laid out. The company has increased its own brand building in recent years, established a brand image through brand co-branding, content marketing, and differentiated products, etc., and achieved significant growth in the Double Eleven promotion. For example, Douyin e-commerce data showed a 6275% year-on-year increase in sales. The company strengthened relationships with dealers through multiple channels such as distribution, direct management, large-scale retail, and own stores, and successfully entered large-scale retail sales such as Sam. At the same time, it plans to open its own stores in Hangzhou and Shanghai to expand the offline market. Audience marketing has become the core goal, providing confidence to offline dealers while directing traffic to local stores. With strong R&D support, the company continues to promote the long-term construction of its own brand by promoting differentiated new products. We expect net profit to be 308 million yuan, 361 million yuan, and 418 million yuan respectively in 23-25, -8%, +17%, and +16%, respectively. PE for 24-25 will be 10.5x and 9.1x, respectively. The first coverage gave it a “Highly Recommended” investment rating.

Risk warning: raw material price fluctuations, international trade friction risk, exchange rate fluctuation risk, inventory consumption falling short of expectations.