Yongyi Co., Ltd.: Leading office furniture overseas, and its share continues to increase

The company achieved revenue of 1,414/2.56/1.01/013 billion yuan for the leading office furniture and the 2023H1 office chair/ sofa/ massage chair body/ leisure chair respectively. In addition, the new lift table category, 2023H1 contributed 1.04 million yuan in revenue. In 2022, Yongyi office chairs accounted for about 9.3% of total exports from China and Vietnam. In recent years, the company's strategy changed to “equal emphasis on domestic and foreign sales, equal emphasis on independent brands and ODM models”. In the first three quarters of 2023, independent brand revenue accounted for 16% of the main business, and the rest was an OEM model.

The export market boom has improved, and manufacturing and overseas production capacity have advantages

Office chair exports have improved markedly, and the company can be expected to increase its share in the medium to long term through manufacturing advantages. Exports in the office chair category recovered in the second half of last year, and the growth rate of China's office chair exports increased to 45% from January to January 2024. The company's customer IKEA FY2023 inventory sales ratio fell back to the historical 33% quartile, and the HNI 2023Q4 inventory ratio fell back to the historical 26% level. The company's orders are also expected to show a clear recovery trend. Looking ahead to the medium to long term, the company is expected to continue to increase its share with costs, R&D and overseas production capacity layout: 1) Cost advantage:

As the scale of procurement of individual components increased, and the cost advantage was strengthened by gradually promoting self-manufacturing of key materials such as sponge, injection molding, and hardware; 2) R&D advantages: the company invested more than 3% of annual sales in 2016-2022. In terms of chassis research and development, it has already launched 10 major adaptive chassis; 3) Overseas production capacity advantages: Currently, most of the company's sales to the US are shipped from Vietnam, and the third phase of Vietnam is progressing steadily. The Romanian base was put into operation last year, and the overseas base is helping the company to meet the order transfer needs of overseas customers.

Domestic sales space can be expected, and a “support chair” is used to build brand power

The company's independent brand building revolves around the three dimensions of product, brand, and channel, breaking the game by building Yongyi's support chair. Domestic sales of independent brands are estimated to account for about 10% of revenue in 2023. The results of the company's brand strategy upgrade in 2023 are already showing initial results. The growth rate of all online platforms for Double Eleven in 2023 is over 200%. Specific approach: 1) Product side: The product is more in line with the needs of domestic consumers. Multi-price products are arranged around the “support chair”, and the flagship Flow 550 was launched last year. 2) Brand side: In September 2023, the company reached a strategic cooperation with Focus Media to quickly launch a “support” brand. In 2024, the investment structure of brand promotion platforms such as Douyin and Xiaohongshu will be optimized to strengthen brand awareness. 3) Channel side: Online and offline go hand in hand. Among them, the online channel is mainly Tmall and JD, and the Douyin platform is expanding, etc., to develop direct management and distribution business for major customers offline.

There is considerable space for new categories, and a new growth curve is being created

With a manufacturing base for chair products and a customer base for international office furniture, the company has expanded brands such as lift tables and e-sports chairs to create new growth drivers. Lift table: Lift table is a new category developed last year. It is expected to form complementary synergistic advantages with office chair customers and channels to drive new volume. E-sports chairs: According to market research, e-sports chairs have become the “three new pieces” for Chinese households. The number of e-sports users nationwide has exceeded 500 million and is growing steadily year by year. Combining its product advantages in the field of office chairs, the company simultaneously has in-depth insight into the usage scenarios and needs of e-sports users, actively explores new categories of e-sports net chairs, and develops the Tektronix e-sports chair brand.

Profit forecasting and valuation

The company is deeply involved in the field of office furniture, bringing new growth poles through customer expansion and new categories with OEM and its own brand two-wheel drive.

In terms of OEM, orders from overseas customers have begun to be repaired after inventory removal. The company is growing rapidly by expanding customers/new categories; the domestic independent brand strategy has been upgraded, and through product optimization and enhanced marketing and channels, it is in a period of rapid growth. The company is expected to achieve operating income of 34.89/4.526/5.413 billion yuan in 2023-2025, -14%/+30%/+20% year-on-year, and net profit of 2.63/3.41/420 million yuan, -21%/+23% year-on-year, corresponding to PE 16/12/10X.

Risk warning

1. Overseas demand falls short of expectations; 2. New customer expansion results are low; 3. Profit forecast assumptions are unfounded or fall short of expectations.