Quanfeng Holdings is the world's leading supplier of power tools and OPE. The company started in foreign trade in 1994 and has now completed a complete value chain layout integrating R&D, procurement, manufacturing, sales and after-sales. Currently, the company's business is divided into OBM and ODM models. Under the OBM model, the company has 5 brands represented by EGO, covering different target customer groups, and sells to end consumers through large-scale retail chains such as Lowe's, Walmart, and ACE Hardware, professional distributors, and e-commerce. The company's overall performance was relatively steady. The departure of major customers led to short-term pressure on revenue and profits in 2023. From January to April 2024, thanks to favorable weather factors and effective promotional activities, the company's sales returned to positive year-on-year growth, and an inflection point in operation was reached.
The global power tools & OPE market is growing steadily, and Quanfeng's market share is increasing rapidly. According to Frost & Sullivan's forecast, the electric tools and OPE markets may reach 38.6 billion US dollars and 32.4 billion US dollars respectively in 2025, and the CAGR for 2020-2025 will be 5.9% and 5.3%, respectively. Electric tools belong to the “GDP+” industry, and demand is expected to be released after the steady restoration of real estate; demand for OPE in Europe and the US is rigid, and hydraulic power is still mainstream. Cordless OPE accounted for 14.3% in 2020. Stricter environmental protection policies and advances in battery technology are expected to help lithium battery OPE gradually replace traditional hydraulic power. The competitive pattern of the industry is relatively concentrated. With excellent product strength, Quanfeng's market share in the electric OPE market rapidly increased from 5% in 2018 to 11.4% in 2020 against the backdrop of an increase in lithium battery OPE penetration rate, ranking 2nd in the world.
On the product side, the battery platform technology is leading, and new products are continuously launched to further expand the range of platform compatibility.
The company's flagship product, the EGO 56V ARC-LithiumTM battery platform, is the first differentiated product in the market. In 2020, EGO ranked third among the top 10 electric OPE brands in the world, with a market share of 9.8%. By the end of 2023, the global sales volume of the EGO brand lithium battery platform had increased to 14 million units. Based on the battery platform, the company expanded its products into lifestyle categories, such as pressure washers, vacuum cleaners and mini bikes, further expanding the scope of the EGO 56V ecosystem, demonstrating the company's technical strength.
From January to April 2024, the EGO brand had strong sales performance in various channels in North America, which accelerated the inventory removal process for major customers, and customer orders increased month by month as a result.
On the channel side, the largest customer, Lowe's cooperation is stable, and e-commerce channels are growing rapidly. Retailers are the company's main sales channel. The company cooperates deeply with Lowe's, and the two sides benefit each other and further explore the North American market.
In 2021-2023, Lowe's accounted for 40.9%, 49.8%, and 34.5% of the company's revenue, respectively. Starting in the third quarter of 2023, the company reached a strategic cooperation with American agricultural machinery manufacturer John Deere. In the future, the company's products will gradually enter John Deere's dealer network in the US and Canada, further expanding the sales scope of EGO lithium battery OPE. E-commerce channels are rapidly expanding. In 2023, EGO ranked first among DC OPE brands on mainstream e-commerce platforms in North America, achieving double-digit growth throughout the year. As the highest-rated brand in the cordless OPE category, EGO is expected to maintain its growth momentum.
Profit forecast and rating: In the context of the increase in the penetration rate of lithium batteries, we are optimistic that the company will continue to expand its sales network to achieve full coverage of high-end and mass market OPE, consumer grade and industrial power tools. We expect the company's net profit to the mother in 2024-2026 will be US$80 million, US$130 million, and US$170 million, respectively. The corresponding PE is 15x/9x/7x, maintaining the “recommended” rating.
Risk warning: Exchange rate fluctuates greatly, overseas demand falls short of expectations, risk of customer loss, channel expansion falls short of expectations, lithium battery OPE penetration rate falls short of expectations, sea freight rates fluctuate greatly, risk of losses in joint ventures, etc.