Investment advice

As a leading manufacturer of outdoor camping equipment, the company has been deeply involved in the industry for more than 20 years. It has 5 production bases in Vietnam, Yangzhou, and Myanmar. As of '21, the company had a total production capacity of 0.38 million tents, 1.6 million sleeping bags, 0.26 million sets of clothing, and 1.1 million backpacks. The company has excellent R&D and innovation capabilities and high-quality overseas customer resources. Revenue grew rapidly during the period of popularity of outdoor manufacturing and exports and domestic camping in 21-22. In the past two years, revenue was under pressure due to overseas brand removals, but profitability remained stable through fee control and product structure improvements.

According to our analysis, 1) In the short term, we believe that the outdoor industry brand inventory is gradually coming to an inflection point; 2) In the medium term, the company's fund-raising “0.25 million roof tent project” will gradually be put into operation. As capacity utilization increases, tent revenue will grow rapidly. At the same time, the company's self-production ratio will increase, and product quality and product cost controllability will further improve; 3) In the long run, the subsidiary Arkham will enable the development of the tent category, and the improvement in Feintime's operation is expected to contribute additional volume. The estimated revenue for 24-26 is 0.847/0.994/1.186 billion yuan, respectively, the estimated net profit to mother is 0.149/0.179/0.233 billion yuan, the corresponding 24-26 EPS is 2.22/2.67/3.48 yuan, and the 2024/11/28 closing price of 33.31 yuan corresponds to the 24-26 PE of 15/12/10X, which is covered for the first time and gives a purchase rating.

Outdoor products industry: Domestic outdoor products have great potential for growth, and outdoor OEM exports are looking forward to an inflection point in orders

1) The retail scale of outdoor goods exceeded 27 billion yuan in 23, with a CAGR of 25% in the past 20 years; 2) In 2023, due to downstream brands entering the inventory removal stage, tent export amounts declined. We expect that with the end of the industry, outdoor goods manufacturing side orders are expected to reach an inflection point from the second half of the year to next year; 3) The competitive landscape is scattered. Compared with domestic outdoor foundry companies, Yangzhou Jinquan enjoyed a higher growth rate during the camping boom period, thanks to high-end customer resources, stronger cost control capabilities, and higher profitability than peers.

Company advantages: strong R&D ability, high customer stickiness

1) The company's R&D advantages are mainly reflected in professional R&D teams, patents and core technology and technological innovation mechanisms. The company's share of ODM increased from 35% to 44% in 19-21, driving a further increase in gross margin. 2) The founder of the company is an Italian businessman. Relying on its overseas background, the company's customers are basically stable, and most of them are internationally renowned outdoor products companies. In the first 21 years, the six major customers accounted for 82.6%.

Growth driver: Looking at the warehouse rhythm in the short term, expanding production capacity, expanding categories, and expanding business

1) In the short term, we analyzed a clear trend of improving the pace of inventory removal. It is expected that by the end of '24 to next year, the company is expected to reach an inflection point in orders. 2) The IPO fundraising project “0.25 million roof tent production line technology transformation project” is expected to increase sales revenue by 75 million yuan and profit before tax by 13.5313 million yuan after delivery, corresponding to a net interest rate of 18%. After the expansion, the share of the company's own production capacity will increase, product quality, production speed, and controllability of production costs will be further improved, and the scale effect will be further demonstrated; 3) The subsidiary Arkham will enable the development of tent categories and look forward to an increase in the net profit contribution of FineTime.

Risk warning:

Capacity utilization falls short of expectations; construction of fund-raising projects falls short of expectations; expansion of new tent categories falls short of expectations; systemic risks.