Incident: According to the company announcement, Yongyi Shangpin, a wholly-owned subsidiary of Yongyi Co., Ltd., was included in the high-tech enterprise filing list for the 2023 certification report by the Zhejiang Accreditation Agency. The company will enjoy the relevant preferential tax policies of the country for high-tech enterprises for three consecutive fiscal years (that is, 2023-2025), that is, pay corporate income tax at a 15% tax rate.
Based on R&D and innovation, the office chair faucet continues to improve new categories and products. The company continues to focus on R&D innovation. 2023H1 has applied for 151 patents and obtained 9 invention patents, 68 utility model patents, and 93 design patents. In terms of office chairs, we are good at understanding the pain points of sedentary users. Using “support” as a value anchor, we have now formed four ergonomic office chair product lines: zoned support, adjustable support, flexible support, and active support. Through different lumbar support techniques, we have achieved full coverage of support technology for products at different price points, and continue to launch differentiated products based on the company's core support technology. Focusing on the “sitting and healthy” scenario and the trend of intelligent furniture, the company continued to expand new categories of healthy furniture. In '23, it launched new products such as smart office chairs, smart lift tables, smart study tables, and smart sofas, built self-developed capabilities for electronic control of smart products, and integrated smart desk and chair products into mainstream intelligent ecosystems such as Huawei Hongmeng and graffiti intelligence.
In terms of lift tables, the product adheres to differentiated positioning and continues to develop home and e-sports-style lift tables. The development situation of large retail customers in mainstream global markets is ideal, and it is expected to contribute to growth.
The manufacturing advantage is leading the industry, which is expected to benefit from a recovery in overseas demand
US retail sales increased year on year, wholesalers and retail inventory levels declined, and the US home market may be gradually transitioning from the inventory removal stage to the inventory replenishment stage. Since June '23, the year-on-year growth rate of China's office chair exports changed from negative to positive, and the year-on-year growth rate increased to 30.32% in December.
In anticipation of US interest rate cuts, real estate-related household consumption demand is expected to recover, and mattress exports are expected to continue to pick up. Under external pressure, the company took more measures to reduce costs and increase efficiency. The 23H1 improvement project reached more than 1,500 pieces, effectively reducing operating costs. In the procurement process, the company continues to reduce procurement costs through measures such as optimizing supplier evaluation and management mechanisms, integrating supplier resources, reducing the number of suppliers, implementing supplier empowerment projects, and optimizing the bottleneck supplier layout; in the operation process, the company vigorously implements T+3 lean transformation projects to further optimize the integrated procurement, production and marketing planning system and lean operation level, reduce inventory and shorten delivery times. In terms of ODM, the company continued to adhere to the “number one number two” strategy in '23, further strengthening the value marketing of major customers and “going out” frequently to participate in exhibitions, visit customers, and recommend new products, successfully developing many important channels and major customers, and accumulating momentum for subsequent order growth.
Focus on strengthening the domestic market and increasing investment in brand channels
The company accelerates the strategic transformation of “equal emphasis on domestic and foreign sales, equal emphasis on independent brands and ODM models”, and continues to make efforts around products, channels, brands, etc. On the brand side, the company continues to carry out marketing activities in line with brand positioning through visual optimization, content marketing, outdoor advertising, brand co-branding, etc.; at the same time, it continues to expand market traffic channels through brand content delivery on platforms such as Fanzhong, Douyin, Xiaohongshu, Zhihu, and B Station, etc., to create a brand mentality of “sitting for a long time and afraid of back pain, Yongyi supporting the chair”, so that more consumers can understand Yongyi's support chair. In terms of channel construction, in addition to traditional e-commerce channels such as Tmall and Jingdong, we are speeding up the deployment of platforms such as Douyin, Pinduoduo, and private community marketing to cover consumers in different regions and circles; at the same time, we are speeding up the layout of offline dealer channels, increasing the expansion of major direct customers, accelerating the construction of offline TOC channels, and continuously expanding sales channels for brand products.
The layout of the three major overseas production capacity bases has been increased, and tariff advantages have further increased its share. The company took the lead in “going global” in the industry to invest in the construction of a Vietnamese production base in 2018. It has become one of the earliest enterprises in the domestic office chair industry to build foreign production capacity, the largest scale, and the largest number of customer resources. At the same time, after years of construction, a solid foundation has been laid in the localized supply chain, personnel quality, technical process, etc. According to the company's announcement, the company's advantage of zero tariffs on high-quality overseas production capacity is outstanding. In recent years, orders and production capacity at the company's Vietnam base have grown rapidly, driving the company's market share and overall market share of major US customers to increase rapidly. At the same time, positive progress has been made in the construction of the Romanian production base, and the 2023H1 has been put into operation, providing strong support for the company to accelerate the development of European and other overseas markets. The company's existing plant in Vietnam can no longer meet future business layout needs. In November '23, the company announced plans to invest a total of 50 million US dollars to build the third phase of the Vietnam production base project. In the current context of a new round of order transfers from European and American customers, the company's three production bases in China, Vietnam and Romania can work together to meet customers' global procurement needs and further enhance the company's competitive advantage in serving major overseas customers.
Investment advice: The company is the leading ODM exporter of office chairs. Demand for overseas terminals is expected to pick up, and domestic sales of its own brands are expected to become the second growth curve. We expect Yongyi Co., Ltd.'s operating income for 2023-2025 to be 36.17, 43.34, 5.128 billion yuan, up -10.80%, 19.82%, and 18.32% year-on-year; net profit to mother will be 2.76, 3.38, and 433 million yuan, up -17.09%, 22.20%, and 27.87% year-on-year, corresponding PE of 10.7x, 8.8x, 6.9x, corresponding to a target price of 12.95 yuan, giving a buy-A investment rating.
Risk warning: raw material price fluctuation risk; exchange rate fluctuation risk; risk of falling overseas demand; shipping risk, etc.