Key points of investment
Jianlin Home Furnishing is the leading exporter of kitchen and bathroom foundry, accounting for 76.8% of exports in the short term. In the medium to long term, the company relied on product technology, major customer advantages, and the release of overseas production capacity to expand leading categories, increase the market share of kitchen and bathroom and water purification foundries, and expand new businesses such as fresh air, personal care, private brands, and cross-border e-commerce. In addition, the company maintains a high dividend ratio of at least 45% each year.
Leading exporter of kitchen and bathroom foundry, healthy life is more blossoming
Jianlin Home Furnishing is a leading kitchen and bathroom OEM exporter. Established in 1990, the revenue from kitchen and bathroom products contributed 66.6% in 2023. Water purification is the second largest category. With collaborative core technology and end customers, it extends various categories such as ventilation, personal care, home appliances, and auto parts. Revenue in 2023 was 4.33 billion yuan, a compound growth rate of 4.2% in 18-23, net profit of 425 million yuan in 2023, and a compound growth rate of 4.9% in 18-23. Among them, 23Q4 revenue was +47.3% year-on-year, and net profit to mother was +33.7% year-on-year. The increase in revenue was due to export reserves and improving demand in the US real estate chain.
Industry Overview: The kitchen and bathroom export boom is picking up, and the water purification industry continues to penetrate the bathroom accessories industry: export inventory is imminent, benefiting from overseas real estate chain restoration. 1) Market demand: At present, US household inventories have recovered to the historical median value, and terminal demand has picked up. Among them, exports in the sanitary ware category have improved month-on-month, and the inflection point of orders is imminent. We expect the industry's active inventory removal phase to end. Based on the transmission logic of optimizing the interest rate environment — existing home sales bottoming out — improving terminal demand, we are optimistic that demand in the sanitary ware industry will pick up after the Federal Reserve's interest rate cut is implemented. 2) Competitive landscape: China is a major exporter of sanitary ware, accounting for 50.2% of global exports in 2021. The cost advantage of the global supply chain is obvious. Chinese sanitary ware foundry mainly has overseas customers, and Jianlin Home takes the lead.
Water purifier industry: The global boom is growing rapidly, and the domestic penetration rate is low. 1) Market demand: The global water purifier market size in 2022 is about US$1205 billion/ +20% year over year, and is expected to maintain an average annual growth of 11.5% in 23-25. The penetration rate of water purifiers in China is only 23%, and there is still a lot of room for improvement compared to 80% in the US, Europe, Japan, and South Korea. 2) Core players: There are many players in the water purifier industry in China. Jianlin Home Furnishing has OEM cooperation with industry leaders such as Midea and Haier.
Company competitiveness: stable R&D and manufacturing foundation, major customers are deeply bound to products: expand the OEM category and nurture independent brands. The company's business model is mainly ODM OEM, and its own brand is still in its infancy. 1) OEM: Focus on product upgrades, from shower extensions to hardware categories, match capacity expansion and intelligent technology investment, and actively expand various businesses such as water purification, personal care, home appliances and auto parts. 2) Own brand: Two major subsidiaries have been set up. Jianlin Smart Home has received the leading project. Remo Homes has set up three sub-brands to actively develop online and offline, and actively develop cross-border e-commerce business.
R & D: continuous investment, intelligent upgrade. The company established a systematic R&D structure and established the Intelligent Electronics Division and the Intelligent Electronics Research Institute. Technically, the company is leading the technology industry in injection molding, surface treatment, etc., and is actively reserving intelligent technology.
In 2019-2023, R&D expenses remained at 5-6%.
Manufacturing: Global layout of production capacity, intelligent manufacturing upgrade. 1) Compared with peers, it has a production capacity advantage: China has 5 production bases and is actively deploying overseas production capacity. Thailand's first phase has already been put into use, and the second phase is expected to be launched in 2024. 2) Intelligent and flexible upgrading of manufacturing systems has promoted human efficiency improvement and profit optimization in recent years.
Sales: 1) Key customers have been tied for many years: The company's customers include well-known international companies such as Kohler, Masco, Moen, Jibi, 3M, Conigan, LIXIL Group, Magna, Ferguson, Haier Smart Home, and Midea, and most of them have been cooperating for more than 15 years. 2) Actively expand new customers: We have established cooperation with leading international home furnishing stores such as Lowe's, Home Depot, and Hornbach in Germany, and have reached cooperation with leading domestic restaurant chain brands Starbucks and Domino.
Profit forecasting and valuation
We are optimistic about the company's short-term export repair flexibility, the medium- to long-term kitchen and bathroom water purification OEM market share increase, and the volume of new business. We expect that in 2024-2026, the company will achieve operating income of 50.95/57.42/6.482 billion yuan, +17.6%/+12.7%/+12.9% year-on-year, and achieve net profit of 5.18/5.98/ 692 million yuan, an increase of 22.0%/15.3%/15.8% year-on-year, corresponding to the current market capitalization PE of 14.3/12.4/10.7. We are optimistic about the company's short-term export repair flexibility, expanding leading categories in the medium to long term, increasing the market share of kitchen and bathroom water purification foundries, and increasing the volume of new businesses such as fresh air, cross-border e-commerce, and independent brands. For the first time, coverage gave it an “increase” rating.
Risk warning
Export demand fluctuates; the Fed's interest rate cuts fall short of expectations; demand transmission falls short of expectations; changes in raw material costs and exchange rates; fluctuations in orders from major customers; volume of new business falls short of expectations, etc.