Key points of investment:
Chenguang Co., Ltd. is a leader in the domestic stationery industry. It integrates a two-wing business layout to drive steady upward growth. Founded in 1989, Chenguang focused on building its own brand in the domestic stationery industry, and maintained a leading position; expanded the direct sales business of Colipu TOB office in 2012, and was launched by Jiumu Sundries in 2016, forming an integrated two-wing development pattern. Under the support of multiple businesses, the company's revenue performance maintained steady growth. The CAGR of revenue/return profit in 2017-2023 reached 24.2%/15.8% respectively. In addition to external disruptions caused by the 2022 pandemic, the company's ROE has stabilized by more than 20%. Along with the efficiency of new businesses, ROE is expected to rise steadily in the future.
The stationery industry has a smooth price increase logic, and the global market space is broad. Take the Japanese writing tools market as an example. From 2009 to 2023, the unit price of the product increased by 0.8%, exceeding the CPI, demonstrating the low price sensitivity of student stationery, impromptu and impulsive consumption, smooth price increase logic, and a decline in hedging. In 2023, the domestic stationery industry had a market size of 104.7 billion yuan, but the per capita consumption and price of writing tools in China was less than half that of the Japanese market, so there is plenty of room for improvement in the future.
When the growth logic of the stationery industry shifts from volume to price, higher comprehensive requirements are placed on enterprises. Consumer insight, product design, supply chain capability, channel capability, and brand traction are indispensable; the concentration of leading enterprises with superior comprehensive capabilities is expected to further increase. Chenguang's market share in 2023 was only 7.5%, and the industry pattern is gradually becoming concentrated. The global stationery market is close to 200 billion US dollars. The global expansion of Japan's Belle and Mitsubishi has driven steady revenue growth for more than 20 years, and overseas blue seas are yet to be developed.
Traditional core retail operation capabilities have been deepened, and product and channel changes have improved. The retail operation capabilities of traditional core businesses have been fully deepened, and the links between the company and the terminal market have been strengthened through the Chenguang Alliance App, the Jiumu retail store layout, and Chenguang Technology's direct online management expansion. The product side is supported by retail data to carry out product design and development from a consumer perspective, combined with active inventory screening and output from the headquarters to help improve terminal sales and turnover efficiency and achieve product structure optimization. Since 2014, the company's product unit prices have continued to rise, and the variety of educational and sports products has expanded. On the channel side, offline resources are focused on boutique stores, promoting direct office and boutique supply models, increasing online investment; the international layout is accelerated, and our own brand will enter Southeast Asia in 2023.
Jiumu Grocery Club successfully explored new retail and gradually formed performance support. Jiumu Grocery Store is positioned as a bridgehead for the Chenguang brand and product upgrades, enhancing the sense of value of the Chenguang brand, accumulating retail operation experience, and feeding back traditional core businesses. Grocery consumption meets individual needs and relies on offline consumption scenarios. Jiumu's “can shop and buy” positioning combines seasonal themes to provide a fresh sense of shopping experience and enhance shopping stickiness. Along with the continuous improvement of operational capacity, the membership system was built, and the marketing customer acquisition experience gradually matured. At the end of 2023, there were 618 stores in Jiumu. In 2023, the floor efficiency more than doubled compared to 2018 to 22,000 yuan, and was profitable for the first time. The Jiumu operating model is successful, and the opening of franchise stores is expected to accelerate in the future, supporting the growth of revenue performance.
The digital procurement market space for enterprises is huge, and Colipu's share continues to increase. According to the Yibang Dynamics report, the enterprise digital procurement market size in 2022 was 14.32 trillion yuan, and the CAGR reached 14.0% in 2017-2022; the market size of office supplies, MRO, employee benefits, and gifts reached 1.70, 2.31, 1.08, and 1.2 trillion yuan respectively. Digital one-stop procurement is beneficial to reducing costs and improving efficiency. In 2022, the digital procurement penetration rate is only 8.3%, and the market will continue to expand. In 2022, CR4 of the office supplies and MRO markets was less than 5%. The market is highly fragmented, but downstream customers are highly concentrated (we estimate that large customers account for nearly 60%), and there is plenty of room for leading companies to increase their share in the future. Colipu's operational service capabilities are leading, and the ROE remains above 25%, which is significantly ahead of comparable companies. Through continuous customer coverage and category expansion, there is sufficient growth momentum.
The integrated two-wing strategy is being promoted. The product side and channel side of the traditional core business are actively retailing transformation to create differentiated competitiveness from peers, and its own brands go overseas to support growth in the medium to long term; Jiumu Sundries Club has sufficient exhibition space, and Colipu expands categories and digs deeper into customers. The new business is expected to maintain a high growth rate, and with the release of scale effects, profitability will increase.
Maintain the 2024-2026 return profit of 17.84/20.69/2,391 billion yuan, +16.0%/15.6% year-on-year, respectively, and the corresponding PE was 16/14/12X. The company's valuation has fallen back to the bottom of history, and the cost performance ratio is prominent. Comparable to the company's 1.4X PEG, the company was given a target PE of 22X, with a target market value of 39.2 billion yuan, an upward space of 36% compared to the current 36%, maintaining a “buy” rating.
Risk warning: The risk that terminal consumption power will continue to weaken and industry competition will increase.