After the third-quarter profit joy, Quanfeng Holdings (02285) seems to finally show signs of "lifting": the stock has seen two consecutive rises (16th-17th), with a cumulative increase of nearly 20% in trading, almost recovering from the previous days' declines. However, the company's upward trend has not maintained strong momentum. As of the close of the 17th, Quanfeng Holdings closed at 21.3 Hong Kong dollars, down 0.47%, with a turnover of 41.237 million Hong Kong dollars. The shift from gains to losses indicates that investors do not have full confidence in its development.

According to the Tercek Financial APP, by the end of December 2021, Quanfeng Holdings successfully listed on the Hong Kong Stock Exchange. Possibly due to the performance bottleneck in 2022 and 2023, the company's stock price has more than halved from the issuance price of 43 Hong Kong dollars over the past two years. Compared with the historical high of 69.6 Hong Kong dollars, the stock price is close to being "knee-cut".

Performance under a low base is still not as good as in 2022.

Quanfeng Holdings is a supplier of power tools and outdoor power equipment (OPE), focusing on innovation in lithium battery system technology. For more than 30 years since its establishment, the company has gone from early ODM business to building and acquiring five major proprietary brands.

In recent years, Quanfeng Holdings' business has been declining, and can generally be described as a continuous decline and loss.

From 2021 to 2023, the company achieved operating income of RMB 1.758 billion, RMB 1.989 billion, and RMB 1.375 billion respectively, with a year-on-year growth rate of approximately 46%, 13%, and -31%. The net profit attributable to shareholders was RMB 0.145 billion, RMB 0.139 billion, and -RMB 0.037 billion, respectively, with a year-on-year growth rate of approximately 226%, 4%, and -127%.

With a low base in 2023, the company is expected to achieve a net income of about 0.1 billion USD (unit: USD, the same below) in the first three quarters of 2024, a 300% year-on-year increase. However, compared to 2022, the company's performance still lags slightly.

Looking at the midterm financial report, Quanfeng Holdings had a revenue of 1.002 billion yuan in the first half of 2022, while it was 0.816 billion yuan for the same period in 2024, a decrease of 18.6%; the attributable net profit in the first half of 2022 was 0.063 billion yuan, which is basically flat with 0.062 billion yuan for the same period in 2024.

In fact, the company's high growth performance in the first three quarters can be considered as impressive. After all, the interim report has already shown some signs.

According to reports, the company indicated in the interim financial report that the expected increase in net profit is mainly driven by the following factors: first, due to strong terminal sales performance and an increase in customer order volume, the company's revenue has increased. This growth is attributed to the company's strong brand appeal, effective promotional activities, and favorable weather, which helps stimulate end-consumer demand and accelerate inventory cycle depletion through channels; second, the company has expanded its production scale and improved production efficiency in a balanced and efficient manner to optimize operating expenses, thereby positively impacting the company's profit.

Of course, from a deeper perspective, Quanfeng Holdings' ability to turn losses into profits is somewhat related to the upcoming replenishment cycle in the garden machinery industry.

Affected by factors such as global inflation and destocking, the OPE industry, especially the lithium-ion OPE, has seen most companies' performances under pressure. For example, in 2023, both Greebo and Ningbo Daye Garden Machinery's performances saw different degrees of losses. However, it is worth noting that in the long run, as the OPE industry recovers, leading companies such as Quanfeng Holdings are expected to fully enjoy the industry's development dividends and opportunities.

Tianfeng Research reports that in the commercial field of OPE, the main customers are landscaping companies, and in 2023, the lithium battery replacement rate in the North American commercial field is less than 5%. The ban on fuel in California, usa is expected to further expand the development space for lithium battery OPE. Benefiting from the mature lithium battery industry domestically, Chinese brands are expected to achieve overtaking on the curve along with the trend of OPE lithium battery.

A leader also has "hidden worries".

According to the Quanfeng Holdings' 2023 annual report public display materials, the sales volume of the EGO 56V battery platform has reached 0.014 billion units, ranking first in market share in the industry. The EGO brand has become the number one in market share for lithium battery OPE on Amazon and the number one in market share for lithium battery handheld OPE in the United States. Among the 58 most popular gardening tools annually, EGO has consistently topped the positive evaluation list 45 times. This also means that as an industry leader, Quanfeng Holdings obviously has a certain scale advantage.

Financial app Zhitong noticed that in recent years, the market growth rate of the global power tool industry has slowed down. According to a Frost & Sullivan report, by revenue, the market size of the global power tool industry increased from $30.9 billion in 2016 to $39.2 billion in 2020, with a compound annual growth rate of 6.1%. It is estimated that from 2021 to 2025, the global power tool market size will reach $51.3 billion, with a compound annual growth rate of 5.5%.

Against the backdrop of the slowing industry growth rate, the growth potential of Quanfeng Holdings as a leader has become its "hidden worry".

Moreover, in terms of the competitive landscape, the global electric OPE market competition is relatively concentrated, and the degree of competition is also considerable.

Frost & Sullivan data shows that in 2020, the top ten participants accounted for approximately 88.4% by revenue, with Techtronic Ind (20.4%) ranking first in market share, Quanfeng Holdings ranking second with a market share of 11.4%. The major domestic participants include Greave, Ningbo Daye Garden Machinery, Hangzhou Great Star Industrial, Nippecraft, and overseas main companies include Techtronic Ind, The Toro, Husqvarna, Stanley Agriculture Group, among others. Ningbo Daye Garden Machinery's main product is gasoline-powered lawnmowers; Greave's main product is new energy garden machinery.

However, Quanfeng Holdings is also actively expanding its products to seek growth. In 2023, the company continued to expand the OPE and power tool product ecosystem based on the battery platform. On one hand, the company is developing high-pressure washers, dry/wet vacuums, and mini bicycles for the EGO brand to strengthen the EGO 56V battery platform user stickiness; on the other hand, the company has expanded over 40 new products and the application scope of the 24V platform under FLEX. Currently, the brokerage believes that the company's destocking cycle has ended and is expected to boost profitability.

Huaxi Securities expects the company's revenue for 2024-2026 to be 1.68, 2.02, and 2.36 billion US dollars (compared to 1.68, 2.03, and 2.36 billion US dollars in the previous 24-26 years), with net income attributable to shareholders of 0.134, 0.17, and 0.204 billion US dollars (compared to 0.11, 0.142, and 0.182 billion US dollars in the previous 24-26 years), corresponding EPS of 0.26/0.33/0.40 US dollars (compared to 0.22/0.28/0.36 US dollars in the previous 24-26 years).

Overall, Quanfeng Holdings, which has experienced a double blow to profit and valuation, seems to still have difficulty seeing the "dawn." At the current stage, considering that the degree of demand recovery in the power tool market is still subject to time verification, it is still premature to assert that Quanfeng Holdings' performance turning point is near. However, as a leading company in the industry, once the industry turning point arrives, Quanfeng Holdings still has a strong rebound capability.