According to the Hong Kong Stock Exchange on November 18, Suzhou Eulesai Shared Services Co., Ltd. (abbreviation: Yulesai Group) submitted a listing application to the main board of the Hong Kong Stock Exchange, with CITIC Construction Investment International as its sole sponsor.

According to public information, Yulesai Group is a leading integrated recycling packaging service provider in China, focusing mainly on providing services to auto parts manufacturers and OEMs in the automotive industry. According to the prospectus, among the company's major shareholders, Suzhou Xinxing Industry, Suqian Guofa, and Suzhou Joint held 5.21, 2.60%, and 2.60% of the shares, respectively, and Hangzhou Gold Investment held 1.88% of the shares. There is no shortage of local state-owned support.

With the name of “the largest shared packaging service provider in the automotive industry”, can Eulusai be favored by investors when it goes public in Hong Kong?

Profit surged 78% in the first half of the year

According to public information, Eulesai's comprehensive services include two main divisions: integrated container management, covering shared operation services (managing the entire container operation process from design to recycling through the company's digital capabilities and extensive operation network) and leasing services and other value-added services; and container sales (providing targeted containers to meet the different needs of customers).

In recent years, the company's revenue and profit have grown steadily. The revenue for the period 2021-2023 was 0.509 billion yuan, 0.648 billion yuan, and 794 million yuan, respectively, and profits were 28.451 million yuan, 31.201 million yuan, and 64,149 million yuan, respectively. In the first half of 2024, the company's revenue was 0.383 billion yuan, up 17% year on year, while profit was 25.951 million yuan, up 78.37% year on year, with strong profit indicators.

According to the Zhitong Finance App, by helping customers transition from traditional disposable packaging to recycling containers and providing shared operation services, Yulexai can help customers effectively save costs such as material costs, capital expenses, labor, and management expenses. The company uses digital systems such as Box Management, Find Me, and Return Box Bao to track and analyze orders and storage conditions, achieve real-time tracking of container locations, and coordinate container management processes to speed up container circulation and improve resource allocation.

According to reports, the company provides customers with a traditional fixed-term rental model, that is, customers pay according to an agreed rental period (such as 30 days), and also provides a more flexible pay-as-you-go system, charging customers according to the number of times the container is transferred.

On the other hand, the company's container sales business targets customers with logistics capabilities and procurement needs. It directly supplies products such as recycled large foldable turnover boxes, small containers, custom-developed linings, and customized metal appliances, etc., and mainly serves companies in the automotive industry.

(Figure: Typical workflow for a circular packaging service)

A deep asset pool and extensive logistics network enable the company to provide customers with reliable supply chain support. As of June 30, 2024, with the support of 70 CMCs, the Yulexai Group managed an asset pool of more than 1.2 million recycling containers and operated 944 circulation lines spread across 97 cities.

According to the data, between 2021 and 2023, the company's overall number of containers increased significantly. In addition to a slight decline in metal utensils, large foldable containers and small containers both rose. As of June 30, 2024, the company's large collapsible turnover boxes in tubes were 0.6538 million sets, 0.5095 million sets of small containers, and 0.042 million sets of metal utensils.

Meanwhile, the number of projects operated by the company increased from 2,521 in 2021 to 3,879 in 2023. Among them, shared operation services increased 56% in two years, while leasing services increased 29%.

During the reporting period, although the number of the company's customers increased from 429 in 2021 to 509, the customer retention rate declined, falling 7.5 percentage points from 75.8% in 2022 to 68.3% in 2023. The retention rate of major customers also fell from 97.9% to 94.3% during the same period.

According to the prospectus, during the record period, the company has established long-term and stable cooperative relationships with more than 800 customers, including some of the world's leading automobile manufacturers.

As of June 30, 2024, the Eulesai Group has expanded its business overseas. The company not only has two international circulation routes in Indonesia and Korea, and has international partners in East Asia, Europe, North America, etc., but has also set up subsidiaries in Hong Kong and Thailand to support international expansion.

The favorable policy of two strong production and sales in the third quarter boosted the recovery of the automotive sector

With the full implementation of the national end-of-life renewal policy and local trade-in and replacement policies in October, China's car market showed a rapid growth trend in October, and the “silver nine gold ten” results were remarkable. According to data from the National Bureau of Statistics, in October, the country's automobile production and sales reached 2.996 million vehicles and 3.05 million vehicles respectively, up 7.2% and 8.7%, respectively, from the previous year, and 3.6% and 7%, respectively. From January to October 2024, automobile production and sales reached 24.466 million units and 246.24 million units, respectively, up 1.9% and 2.7% year-on-year, respectively.

According to public information, up to now, all provinces in the country have introduced and implemented car replacement subsidy policies, and at the same time introduced strong car purchase policies to promote consumption. The amount of bicycle subsidies is quite impressive, bringing a new wave of growth impetus to the car market. As of November 6, there were more than 1.7 million applications for automobile scrapping and renewal subsidies nationwide, and the amount of automobile replacement and renewal subsidies in various regions showed a rapid growth trend.

The overall improvement in the automotive industry is also reflected in the performance of related companies. According to Hualong Securities statistics, the passenger car sector achieved revenue of 519.5 billion yuan in the third quarter, up 2.2% and 7.8% year over month, respectively. Profitability recovered significantly. Net profit after deducting non-return to mother decreased by 26.2% year on year and increased 15.9% month on month.

At the same time, gross margin increased by 0.6 and 1.4 percentage points, respectively, in the third quarter, mainly due to an increase in the share of sales of high-priced and high-margin models; during the period, the cost ratio increased by 2.1 and 1.4 percentage points, respectively. It was mainly due to increased market competition combined with an increase in marketing and R&D expenses due to increased newly launched models.

In the third quarter, the performance of various segments was divided. Among them, NEV companies' revenue grew rapidly year on month, and some automakers were dragged down by fuel and joint ventures, and their performance declined markedly.

At the same time, due to intense competition in the passenger car market, the gross margins of most companies in the sector declined year on year, and intensive sales of new cars also led to an increase in investment in marketing and channel construction, which affected the overall profit level.

Hualong Securities pointed out that the progress of new energy transformation has become a core variable affecting the performance of car companies. In the third quarter, sales of new energy passenger vehicles increased by 43.9% year on year, and the penetration rate of new energy in the quarter exceeded 50% and reached 52.8% for the first time. Looking ahead to the fourth quarter, favorable domestic policies are compounded by the gradual implementation of overseas production capacity by autonomous car companies. Overseas sales are expected to continue to increase, and sector profitability is expected to continue to recover month-on-month.

Digital transformation and sustainable development trends in the automotive industry are jointly driving the growth of the Eulesai Group's performance. The Zhitong Finance App learned that Yulexai's customers are mainly auto parts manufacturers and OEMs in the traditional automobile industry (including fuel vehicles) and the new energy vehicle industry, including some key auto parts manufacturers.

According to Frost & Sullivan, in terms of 2023 revenue, Eulesai is the largest service provider for the entire shared operation service industry and shared operation service industry in the automotive sector in China. However, the market concentration of shared operation services in China is relatively low. The market share of the five major players in 2023 was 9.8%, and leading companies have not established a clear leading edge.

Overall, despite the rapid growth in performance, the customer retention rate has declined, and the company's business is relatively low-end and the technical threshold is low, which has also led to the unstable market advantage of Eulesai. Benefiting from the overall recovery of the automotive industry, there is still room for growth in the subsequent Eulace performance, and looking at the longer term, Eulux may need more “hard power” to convince investors.