Recommended logic: 1) The proportion of large-volume refrigerators continues to increase, and the company fully benefits as a leader. Since its establishment, the company has focused on R&D and OEM production of large volume refrigerators of 400L or more. In recent years, there has been a clear trend of “large volume” refrigerators. The company's market share of large volume refrigerators in 2022 was 53.1%, which fully benefited as a leader; 2) The share of commercial showcases and overseas increased, driving improved profitability. The company's share of commercial showcases and overseas revenue has increased markedly in recent years. The gross margin of commercial showcases is about 10pp higher than that of refrigerators, and the gross margin of the overseas market is 5pp higher than that of the domestic market. This increase in share can drive steady optimization of the company's profitability; 3) Production capacity is expected to be further released after raising capital and expanding production. The company's refrigerator capacity utilization rate remains at around 90%. Subsequent capital raised by the company will be used for a “project to produce 1 million units of built-in refrigerators and other refrigerator products per year” to further unleash the company's production capacity potential while improving profitability on the cost side.
Focus on the high-volume refrigerator circuit and eventually become the invisible champion. Since its inception, the company has focused on R&D, production and sales of large-volume refrigerators, and officially put into operation the first large refrigerator production line in 2012, and obtained a license to produce refrigerators above 500L. After years of development, the share of offline/online sales of large volume refrigerators increased from 28.5%/13.4% in 2016 to 63.5%/40.1% in 2022. According to China's 2022 large volume refrigerator OEM shipment statistics, the company's market share was 53.1%, making it the invisible champion in the large refrigerator OEM segment.
The share of commercial showcases and overseas has increased to optimize profitability. With many years of production experience in the refrigerator industry, the company has established cooperative relationships with large enterprises in the commercial display case sector (Taikoo Group, COFCO Group, etc.). The revenue share of commercial showcases increased from 3.9% in 2020 to 11.2% in 2022; regionally, the company actively expanded overseas markets, and the share of overseas sales increased from 14.8% in 2020 to 18.4% in 2022. The gross margin of commercial showcases is about 10pp higher than that of refrigerators, and the gross margin of overseas sales is about 5pp higher than domestic sales. The share of commercial showcases and overseas has increased, which can continuously improve the company's profitability structurally.
Flexible production ensures efficiency, and raises capital to expand production to unleash growth potential. The company continues to maintain high production efficiency through a large-scale, high-precision flexible production system. Among them, the capacity utilization rate of refrigerators remains at around 90%, and the capacity utilization rate of commercial display cases and other products continues to increase. Currently, it has reached more than 90%, and the existing production capacity is basically saturated. This time, the company publicly issued new shares, and the capital raised will be used for projects such as improving the ability to make 1 million built-in refrigerators and refrigerator parts. On the one hand, it will break through the company's production capacity bottlenecks and seize the development opportunities of embedded refrigerators, and on the other hand, build new production lines to continue to reduce costs, improve the company's profitability, and enhance its competitive advantage.
Profit prediction and investment advice: As the invisible champion of large-volume refrigerators, the company continues to drive improved profitability and efficient use of production capacity by increasing the share of commercial showcases and overseas revenue. This public offering of new shares breaks through capacity bottlenecks on the one hand, and optimizes profitability from the cost side through component manufacturing. We expect the compound growth rate of net profit to be 31.6% over the next three years, giving a “holding” rating for the first time.
Risk warning: Risk of large fluctuations in raw material prices, risk of overseas sales falling short of expectations, risk of fund-raising project construction falling short of expectations.