Mercano Electronics: A leading domestic passive component distributor. Shangluo Electronics is a leading passive component distributor in China. It mainly provides electronic product manufacturers with passive electronic component products such as capacitors, inductors, resistors and RF devices. The company is rich in upstream resources, has licenses from more than 80 well-known original manufacturers, including internationally renowned passive manufacturers such as TDK, Samsung Electric, and Guoju, and sells more than 30,000 electronic component products to about 2,000 customers.
On the financial side, the company's revenue scale has expanded steadily in recent years. In 2017-2020, the company's revenue increased from 1,676 billion yuan to 3.119 billion yuan, with a compound annual growth rate of 23%. Among them, passive components, mainly MLCC, accounted for more than 70% of the share, so the company's performance is highly correlated with the sentiment of the passive industry. In addition, the company continued to expand its other electronic components business in order to improve the stability of its performance and expand its product range, and its revenue share increased from 15.42% in 2017 to 31.07% in 2020.
Passive demand continues to be strong, and distribution concentration is expected to increase. With the rapid development of consumer electronics, automotive electronics, and network communications fields, the passive components market space is constantly expanding. (1) The global capacitor market is expanding steadily. According to data from China Industry Information Network, in 2011-2019, the size of the global capacitor market increased from US$16.2 billion to US$22.2 billion, with an average compound annual growth rate of 4.22%. (2) Huajing Intelligence Network predicts that the global inductor market will be close to 5 billion US dollars by 2024, with an average compound annual growth rate of 5.15% in 2018-2024. (3) The global resistor market continues to grow. The Industry Information Network estimates that in 2014-2020, the size of the resistor market increased from 4.4 billion US dollars to 5.6 billion US dollars, with a compound annual growth rate of 5.05%.
(4) Huajing Intelligence Network predicts that the global RF front-end market will reach US$35.2 billion by 2023, with an average compound annual growth rate of 15.18% from 2019 to 2023.
Currently, domestic distributors are still small and scattered. With the listing of domestic distributors and mergers, acquisitions and restructuring, the concentration of the distribution industry will increase further. As a leading passive distributor in China, the company actively expanded its retail product line after listing, and its market share is expected to continue to increase. We believe that the increase in market share will enhance the company's position in the industrial chain, enhance its bargaining power upstream and downstream, and is expected to obtain more original manufacturer licenses and new customers, thereby further increasing its market share and forming positive feedback.
Adopt differentiated competition and cultivate passive component distribution. The company's main business models are procurement, sales and inventory management. By predicting customer needs, the company provides customers with complete supply chain services, and has set up central warehouses in Nanjing, Shenzhen and Hong Kong to improve the speed of response to customer needs, thereby improving the level of customer service. For the vast number of long-tail customers, the company actively deployed the SunLordEmall online trading platform to push the company's business to continue to decline. At the same time, the company has significant competitive advantages. Compared with companies in the same industry, the company has authorized brand advantages, customer base advantages, supply chain management advantages, risk control advantages, and team advantages.
Fundraising projects strengthen digital management and enhance market competitiveness. The capital raised by the company in this IPO will be used for the commercial network digital operation platform (DOP) project, the construction project of an intelligent warehousing and logistics center, and the expansion of the sales product line project. Among them, the EMALL online trading platform in the DOP project will reduce the sales costs of serving long-tail customers from a technical perspective, help enterprises explore the vast market for long-tail customers, and further sink the service sector. In the intelligent warehousing and logistics center construction project, the company will realize the informatization of warehousing and logistics, which will help strengthen the company's supply capacity to local warehousing and logistics centers and reduce picking time.
Profit forecasting and valuation: Shangluo Electronics is a leading passive component distributor in China. Currently, the company is actively expanding its sales product line. We expect the company's net profit to be 261/317/388 million yuan respectively in 2021/2022/2023, and the corresponding EPS is 0.62/0.76/0.92 yuan. We are optimistic about the company's leading edge in the field of passive component distribution. It was covered for the first time, giving it an “increase in holdings” rating.
Risk factors: risk of performance fluctuations, risk of repeated COVID-19, etc.