Ling Xiao Pump Industry: Plastic bathroom pump faucet, overseas business has increased rapidly, and profitability continues to improve. The company has focused on the field of civilian centrifugal pumps for 40 years. The main products include plastic bathroom pumps, stainless steel pumps, and general pumps. From listing in 2017 to 2021, the company's revenue scale increased from 980 million yuan to 2.06 billion yuan, and net profit to mother increased from 190 million yuan to 480 million yuan. Overseas business revenue has grown at a compound rate of more than 15% in the past ten years and five years, accounting for an increase from 39% in 2013 to 59% in 2022. Affected by the epidemic, early stocking and early consumption, the company's revenue and net profit to mother declined by 28.09% and 12.70% respectively in 2022. Currently, inventory has basically been digested.
Pump industry: Fully competitive, highly scattered, but underestimated, the 100 billion market pump is a highly mature, high SKU, and low technical difficulty product. There are more than 5,000 types of pump products in the world. Their prices are not expensive, and demand is relatively rigid.
1) With a 100 billion dollar market, China accounts for half of the world. The global/Chinese pump market is expected to reach 452.2/250 billion yuan in 2024, and the market size CAGR for 2014-2024 is 5.8%/5.5%, respectively.
China's centrifugal pump market is expected to reach RMB 147 billion in 2024. The downstream pump is widely used, the overall market size is large, and it is highly related to the overall economic development.
2) The pump industry is highly fragmented but centralization is accelerating. There are a large number of pump manufacturers worldwide and domestically, with CR10 reaching 50% in the international market, while CR10 in the Chinese market is only 21.2%. China's pump industry has the characteristics of agglomeration effects and obvious scale effects, and the trend of leading concentration is accelerating.
Company highlights: The “invisible champion” of the segmented circuit. The bathtub pump industry with high dividends and high quality standards is small in scale but has a long-term steady development foundation. The product has the characteristics of high value, low price and high integration. Downstream users are not price sensitive, and there is room for brand effect. According to ModorIntelligence and our estimates, the global bathtub pump market size in 2024-29 is RMB 241-2.84 billion. Compared with the 100 billion dollar scale of the pump industry, it is a typical segmented circuit. The company focuses on its main business, accounting for nearly half of its international business, and the number of overseas customers continues to grow; the company develops its own water pump motors and has more than 40 years of motor manufacturing experience, forming the dual advantages of low cost and deep tuning. The company has been paying shareholders with high dividends for many years. The dividend rate for the past three years was 5.4%/3.6%/6.0%.
Profit forecast and investment suggestions: Ling Xiao Pump Industry has long focused on segmenting plastic bathroom pump tracks, taking a leading position, forming a strong brand, and has continued to implement cash dividends to return shareholders since listing. According to the business split and profit forecast, the company's revenue for 2023-2025 is estimated to be RMB 1,45/16.8/1.90 billion yuan, net profit to mother is estimated to be RMB 429/5.26/556 million yuan, and dividend per share is RMB 1.03/1.13/1.34 yuan. The selected comparable company's 2023 PE was between 11-22 times, with an average of 17 times. It gave Ling Xiao Pump Industry 18 times PE, with a target price of 21.61 yuan/share. Compared with the closing price on January 25, 2024, there was room for 22.2% increase, giving it a “buy” rating.
Risk warning: downstream orders fall short of expectations; risk of fluctuations in raw material prices; risk of inventory impairment; assumptions and estimates in the article are subjective and are for reference only.