China's number one and the world's fifth largest full-life cycle management service provider for on-site logistics equipment.
The company was founded in 2007 and is headquartered in Guangzhou. As of April 30, 2023, it has 67 service outlets in 47 cities across the country, has about 700 service technicians and engineers, and manages and operates more than 40,000 on-site logistics equipment. The company is the largest on-site logistics equipment operation and management company driven by IoT technology in China. According to IRN statistics, its fleet size ranks fifth in the world. The company provides on-site logistics equipment subscription, maintenance and equipment and accessories sales services for industrial and logistics customers.
Francis has room to grow 20x+. According to Insight Consulting, based on 2022 revenue, the company's market share is 7.7%. Assuming that the company will achieve a market share of 20% in the future, that is, the market share will increase 2.6 times. Currently, the market penetration rate for the full life cycle management of logistics equipment in China is 6.4%, and the developed markets in Europe and the US are 63%. Assuming that China's penetration rate can reach 60% in the future, that is, if the market penetration rate increases 10 times, Francis's growth potential can reach 26 times (2.6 x 10 = 26 times).
Full life cycle management is an inevitable trend in the development of the on-site logistics equipment industry. Tang Chao, chairman of the Industrial Vehicle Branch of the China Construction Machinery Industry Association, once pointed out that purchasing services is an inevitable trend in market development. In the development trend of the leasing industry and logistics equipment manufacturing, it fully illustrates the strong demand for aftermarket services. In-house logistics equipment, mainly represented by forklifts, has characteristics such as high unit price, safety, versatility, and mobility. It is an essential tool in the on-site logistics scenario, and has strong leasable properties.
The company has strong barriers in the industry: (1) a first-mover advantage in the market; (2) a highly collaborative service portfolio; and (3) an efficient intelligent operation system for equipment management. (4) Perfect supply chain system; (5) comprehensive service network covering a large number of customers; (6) strong forklift disposal and remanufacturing (factory) capabilities; (7) new categories of on-site logistics equipment.
Financial forecast: We estimate that in 2023-2025, the company will achieve revenue of 1,407 billion yuan, 1.704 billion yuan, and 2,194 billion yuan, respectively; net profit is expected to be approximately 25.89 million yuan, 108 million yuan, and 174 million yuan, respectively. The adjusted net profit for 2023 is expected to be at the level of 65 million (plus listing fees).
Investment advice: We have counted 5 typical comparable companies in the construction machinery/transportation/industrial equipment leasing industry in the UK and the US. According to statistics, comparable companies averaged 1.5 PEG in 2024.
Taking into account factors such as the company's gross margin and net margin level, revenue scale, and Hong Kong stock liquidity, we gave the company 1 times PEG in 2024. The company's net profit CAGR for 23-25 is 62.3%, and the net profit for 2024 is expected to be RMB 108 million, so the company's valuation is RMB 6.72 billion, corresponding to HK$7.302 billion. The target price is HK$2,098 per share, giving it a “superior to market” rating for the first time.
Risk: The net profit growth rate falls short of expectations due to revenue growth falling short of expectations; the decline in gross margin due to increased competition affects the net profit level; the company's operating efficiency falls short of expectations, leading to a decline in equipment utilization, which in turn affects the company's revenue and net profit levels.