Incident: Henglin Co., Ltd. issued an announcement that its subsidiary passed the high-tech enterprise certification.
Huzhou Hengxin Metal Products Co., Ltd., the holding subsidiary of the company, was included in the 2023 certification list of high-tech enterprises certified by the Zhejiang Provincial Accreditation Authority; Anhui Xinnuo Furniture Co., Ltd., a wholly-owned subsidiary of the company, was included in the second batch of high-tech enterprise filing list certified by the Anhui Provincial Accreditation Authority in 2023. Hengxin Metal and Xinnuo Furniture can enjoy the country's preferential tax policy on high-tech enterprises for three consecutive years (2023 to 2025) from when they are certified as high-tech enterprises, that is, pay corporate income tax at a rate of 15%.
Overseas demand is expected to continue to recover, and ODM business will develop steadily
Interest rate cuts in the US are expected gradually, and real estate recovery is in sight. The interval between US real estate transactions and renovation is short, and demand for renovation is expected to be released later. US channel vendor inventory is in the middle of nearly five years. It is expected that terminal demand will recover and it is expected that it will enter the inventory replenishment cycle. With rich experience in home furniture design and manufacturing, the company provides customers with high-quality products and services. It has stable cooperation with well-known international customers such as IKEA, NITORI, Source ByNet, Office Depot, and Staples. The ODM business is expected to continue to recover as terminal demand recovers.
Private brands take advantage of cross-border e-commerce to actively improve efficiency and create a basic barrier. The company's cross-border e-commerce has laid out an entire ecosystem around the concept of “manufacturing+service”, and mainly sells its own brand products on the Amazon platform. In recent years, the company has continuously upgraded its cross-border e-commerce team building. It continues to focus on branding and professional development, adjust the product structure, diversify the product matrix, and provide differentiated products and services based on customer needs. The company continues to focus on improving the consumer shopping experience and continuously improving terminal sales and delivery timelines. At the same time, the company actively improves operational efficiency and builds cost advantages. The company built its own overseas warehousing and logistics base to achieve a streamlined, localized and multi-point layout of warehousing management; established a freight forwarding company to successfully transform the original scattered international transportation into bulk transportation, which helped shorten delivery time, improve return and exchange service efficiency, reduce logistics and rental costs, shorten the order cycle and enhance the user experience; in order to ensure efficient and accurate inventory management and improve the operation management efficiency and service timeliness of warehousing logistics, the company independently developed cross-border e-commerce systems, including ERP, overseas warehousing systems, financial systems, and operation systems, greatly improving operational efficiency.
Continuously promote the large household strategy. The continuous integration of high-quality domestic and international standards is to improve the industrial chain and large household strategy. In recent years, the company has actively acquired and expanded, and the acquisition targets have matured and effectively integrated and collaborated with the company. 1) The products of the subsidiary Anhui Xinnuo and Dr. Chef all belong to the panel furniture sector. The acquisition of Dr. Chef to expand the custom panel furniture business will help the company to better serve leading overseas home furnishing companies. With the acquisition of Anhui Xinnuo, the company entered the IKEA furniture market, which helped the company to better complete the office chair, sofa, and massage chair contract business with IKEA. 2) Acquire Swiss Lista Office to open up the European market, accelerate the international layout of the company's production and R&D market, and enhance overall market competitiveness and brand strength. 3) The acquisition of Yongyu Home Furnishing, its main business, PVC plastic flooring, has high overall recognition in North America and Europe, and the US market has broad prospects.
It makes full use of the production capacity of its Vietnamese factory to produce office chairs, sofas, etc.
Investment proposal: Henglin Co., Ltd. is a leading exporter of office furniture. Its main business, ODM, is expected to benefit from the recovery in US household demand, deepen the layout of the entire cross-border e-commerce industry chain, and the contribution of mergers and acquisitions to promote the strategic performance of households is expected to gradually show, and long-term growth can be expected.
We expect the 2023-2025 operating income of Henglin Co., Ltd. to be 82.10, 96.43, 11.433 billion yuan, up 26.02%, 17.45%, and 18.56%; net profit to mother will be 4.52, 5.51, and 669 million yuan, up 28.18%, 21.91%, 21.34%, corresponding PE of 11.3x, 9.3x, 7.6x, and a target price of 50.83 yuan for 24 years, giving a buy-A investment rating.
Risk warning: risk of exchange rate fluctuations, risk of fluctuations in raw material prices, risk of overseas markets falling short of expectations.