Since this year, global commodity prices and shipping prices have generally skyrocketed. Investors' expectations of inflation have continued to heat up, and multi-country treasury bond yields have rebounded to varying degrees, triggering higher market interest rates, which are the cornerstone of financial market pricing. Coupled with the resurgence of the epidemic in some parts of the world, the mutation of the coronavirus has not yet been fully controlled. Therefore, financial market participants are still worried about the economic and trade recovery process for some time to come. Against this backdrop, many investors have experienced continuous turmoil in the world's major stock markets. This year, many investors have indeed felt that it is difficult to make money in the stock market It continues to grow.
Fortunately, the Hong Kong stock IPO market has continued to pick up recently. There are two main reasons. The first is that overseas capital continues to flow northward into the A-share market through the Hong Kong Stock Connect channel. Recently, the net inflow of capital from the North has continued to expand and set a new record, so the Hong Kong stock market will benefit as the “first stop” for overseas capital; the second point is that many new economy companies with beautiful fundamentals, characteristics, reasonable pricing, and promising new economy companies in various industry segments that meet China's economic transformation requirements have chosen to launch capital IPOs in the Hong Kong market. Adequate capital combined with improvements on the supply side of IPOs is the logic behind the continued recovery of the Hong Kong IPO market.
Generally speaking, looking from the perspective of investors' choice of opportunities, “smart” funds and some “visionary” investment institutions in the market have recently chosen to refocus on relatively undervalued value stocks, or focus on “smart manufacturing” investment opportunities that have not yet been fully explored and have great prospects in line with China's economic transformation and upgrading and policy advantages. Among the new stocks that are about to be listed on the Hong Kong stock market, we discovered that Morimatsu International, which has once again returned to the Hong Kong stock market, is one of the investment targets in line with the current direction of market capital selection.
As a high-quality enterprise with low distribution prices and far from reflecting its market value, the company has both internationalization and localization capabilities, and has achieved a leading edge in the domestic pressure equipment industry. Morimatsu International relaunched its global public offering program on the Hong Kong Stock Exchange on June 15 (that is, Tuesday).
A Japanese holding company rich in craftsmanship, putting R&D capabilities first and continuously consolidating its leading edge in the industry
Morimatsu International is held by Japan's Morimatsu Industries. After 30 years of focusing on development and the integration and accumulation of resource networks, Morimatsu International has now successfully completed the localization and international market expansion in China. It has 6 overseas divisions, with products and projects spread across 45 major countries or regions around the world.
As a Japanese-owned manufacturing enterprise, the craftsmanship promoted by Japanese companies is particularly evident in Morimatsu's corporate culture. Self-driven inner mentality such as focus, research, excellence, and continuous transcendence enabled Morimatsu to compete in long-distance running and establish a high ground in many downstream fields served by the pressure equipment industry.
According to the prospectus, up to 2017, 2018, 2019, and the year ending December 31, 2020, Morimatsu International's R&D expenditure continued to increase, to about 87.25 million, 121 million yuan, 126 million yuan, and 126 million yuan respectively. The average of R&D expenditure as a proportion of total operating expenses over the past year exceeded 30%, showing the company's R&D first characteristics.
Unlike ordinary manufacturing suppliers, Morimatsu International uses R&D and technological advantages to continuously focus on core fields with high irreplaceable and high added value, that is, providing customers with core supply equipment and value creation services to overcome key links and technical problems. To a certain extent, it is similar to the position of lithography machines in the currently hot semiconductor industry. We know that the greatest demand for high-quality core products and value services usually comes from leading companies in various downstream manufacturing fields. Morimatsu's path choice determined that the quality of its orders far exceeded that of its peers, and the low volatility of business sources is also well guaranteed.
We believe that the spirit and R&D capabilities of the company and craftsmen will help it continue to consolidate its leading market position and continue to distance itself from competitors in the industry. Currently, Morimatsu is the number one non-state pressure equipment manufacturer and service provider in China.
Also, according to Morimatsu Kokusai's prospectus, as of the four financial years ending 2017, 2018, 2019, and 2020, Morimatsu International's operating income was RMB 1,570 million, RMB 2,826 million, and RMB 2,979 million, respectively, with a compound annual growth rate of about 23.8%; the corresponding gross profit was RMB 283 million, 512 million yuan, 603 million yuan, and 844 million yuan, respectively, with a compound annual growth rate of 43.9%. It is worth mentioning that the company recorded 18.1%, 20.7%, 21.3%, and 28.3% gross margins in 2017-2020, respectively, showing signs of improvement year by year.
The corresponding profits from continuing operations during the period were $15 million, $146 million, $141 million, and $289 million, respectively, with a compound annual growth rate of about 169.6%; net profit returned to the mother during the company period was RMB 07 million, $116 million, $149 million, and $289 million, respectively, with a compound annual growth rate of about 244.1%.
As can be seen, the company is not only showing a steady and continuous upward trend in terms of revenue, gross profit from continuing operations, net profit from continuing operations, etc., but the compound annual growth rate corresponding to revenue and gross profit from continuing operations to profit from continuing operations also continues to increase, reflecting the company's extremely good and healthy asset operation status.
There are only a few manufacturers in the industry that can provide pressure equipment across industries. The customer base is stable and benefits from the rapid growth of the downstream industry
Relying on leading manufacturing technology, R&D design and maintenance capabilities, Morimatsu International has become a very rare “minority” in the industry. Unlike other participants who focus on equipment in a certain industry, Morimatsu International can provide pressure equipment manufacturers across industries, seek opportunities in multiple downstream industries, continuously capture new industry growth points, and reduce the cyclical impact of a single industry. Currently, the downstream chemical and pharmaceutical industries have become the main source of revenue for Morimatsu International, followed closely by petrochemical, mining and metallurgy, oil and gas refining, and other industries that do not account for much of the difference.
As can be seen from this,Morimatsu Kokusai has no “shortcomings.”Furthermore, although the company is a cross-industry pressure equipment manufacturer and service provider, it can maintain a leading position in many downstream fields with its technical advantages and industry experience, and achieve a leading position in the industry.
A strong side proof is that the company's customer structure is very strong. Many leading companies in the fields of chemicals, oil and gas, pharmaceuticals, cosmetics, and new energy (including domestic and foreign giants) are the company's long-term service and maintenance customer groups. Examples include Wanhua, a leading company in the chemical industry, and Pharmaceutical Pharmaceutical, Pharmaceutical, Watson Biotech, Novartis Pharmaceuticals, etc. in the pharmaceutical field.
However, in the downstream industry, biomedicine development potential is particularly huge. China's pharmaceutical and biopharmaceutical industries are in the development stage of upgrading and transformation, and traditional pharmaceuticals are rapidly advancing in the direction of biomedicine development. According to information provided in the prospectus, it is expected that by 2024, the sales revenue of China's pharmaceutical industry will reach 1.8 trillion yuan, and the pharmaceutical industry and biopharmaceutical industry are expected to maintain a compound annual growth rate of 16.4% and 17.8% in 2019-2024.
National policies and health care reforms continue to encourage innovative research and development. As a large number of innovative pharmaceutical research companies and non-profit biotechnology companies go public in Hong Kong, after successfully raising capital, demand for investment, renewal and expansion of advanced pressure equipment essential to the pharmaceutical industry has also increased.
Morimatsu International has been active in the fields of biopharmaceuticals including vaccines, antibodies, insulin, and blood products for a long time, and the pharmaceutical industry is also one of the downstream fields where the company's revenue sources account for the largest share of the company's revenue, because sustainability will drive the company's future performance growth.
The first digital operation and maintenance concept business proposed has begun to gain strength, and the asset-light model is expected to become the “second growth curve”
Morimatsu International is a leading industry leader in proposing value-added services such as digital operation and maintenance. This concept is similar to the role of smart factory operators proposed by upgrading and transformation in the manufacturing industry. At present, the company has obtained practical operation experience such as modular plants and digital operation and maintenance orders.
According to the type of prospectus revenue, revenue from this type of service is classified into Morimatsu International's value-added service business. As can be seen from the revenue share of value-added services, it is still in its infancy, and there is broad room for growth in the future.
According to information, on the basis of traditional and modular pressure equipment manufacturing, Morimatsu International further lays out value-added services such as digital operation and maintenance, which can further reflect the company's competitive barrier advantages. The value-added services it can provide to customers are a high-level or higher-level business form. It is also an exploration and practice of the company's asset-light model. It can be said that Morimatsu International has the opportunity to become the first group of “crab-eaters” in the industry for value-added services such as digital operation and maintenance. These are mainly due to Morimatsu being ahead of traditional manufacturing companies and rivals in the same industry A more comprehensive informatization and intelligent transformation has been completed.
With long-term close partnerships maintained with leading customer groups in various industries, and riding on the momentum of the accelerated transformation of the digital economy, Morimatsu is expected to continue to promote innovative forms of value-added services within the industry, increase the industry penetration rate of this value-added service, and be the first to create new growth points, and even change the traditional positioning of equipment suppliers.
Therefore, we can no longer think of Morimatsu Kokusai as a traditional pressure equipment manufacturer from a traditional perspective. Morimatsu International, which pioneered a unique asset-light operating model in the industry, believes that the company has found its own “second growth curve.” In turn, Morimatsu, who took the lead in forming the “second growth curve,” can make its technical advantages, model advantages, and market-leading “moat” more obvious and clear.
According to the opinion of Schumpeter, the originator of the “innovation theory,” no matter how many carriages are added in a row, a single train cannot be created; growth can only be achieved tenfold when hopping from horse-drawn carriage to train. However, from the perspective of an operating enterprise, if an enterprise wants to surpass the dividends of the times and obtain continuous breakthroughs or sustainable operation, whether it has a second growth curve is one of the most critical factors in determining its growth value.
I believe that as market awareness deepens and Morimatsu Kokusai's performance potential continues to be unleashed after listing, investors will definitely give it a fresh understanding and new valuation position.
Finally, it is worth mentioning that some industry insiders pointed out that the listing of Morimatsu International may have begun the market's revaluation of the Hong Kong stock advanced manufacturing or intelligent manufacturing industry. As a leading representative company in the industry, Morimatsu International has an opportunity to become a trendsetter in the capital market.