Ryert: Deeply involved in bathroom manufacturing, smart products have great potential. Raitel started with the manufacture of bathroom accessories and later extended to smart toilet products. With the rapid expansion of OEM and independent brand businesses, smart products have great potential. In 2023, the company's water tanks and accessories/smart toilets and cover/same floor drainage products accounted for 28%/58%/10% of revenue. The flushing components business ranked first in China and the top three in the world in 2022, laying the company's manufacturing foundation and customer advantages. The smart toilet business continued to expand under “foundry+own-brand” two-wheel drive, and the share of smart toilets and covers revenue increased from 23% (2018) to 58% (2023). In 2023, the company's revenue/net profit to mother was 21.84 billion yuan, and the 3-year CAGR was 19%/24%. The company's products and growth structure have been reshaped, and future growth will be dominated by smart toilets.
The smart toilet industry chain has strong advantages, driving the trend of domestic substitution
China's smart toilet industry chain has strong advantages, and domestic substitution has achieved remarkable results. The components of smart toilets are mainly sanitary ceramic bases, waterway components, and smart covers. China's sanitary ceramics technology & innovation capabilities are outstanding, and the global competitive advantage is strong. In 2022, China's ceramic exports accounted for 52% of the world; waterway component manufacturers have strong technical and scale advantages; intelligent covers are increasing in automation & component supply scale, and production efficiency is optimized. Moreover, manufacturing enterprises are developing in clusters, and the advantages of scale are prominent. In 2022, China's smart toilet production was 9.9 million units, and the 8-year CAGR was 33%, accounting for 66% of the world. With the increasing improvement of smart toilet industry standards and continuous improvement in quality, the national smart toilet pass rate reached 96.8% in 2022. With the increase in manufacturing advantages, the domestic smart toilet consumer market has formed a localized alternative. Domestic brands such as Jiumu, Wrigley, Hengjie, and Rite have the highest share, and the trend of foreign brands is weakening. Taking online channels as an example, the market share of Jiumu/Hengjie/Wrigai/Rieter in 2023 was 19%/10%/9%/6%, respectively.
Ried has a prominent position. The “Brand+OEM” two-wheel drive growth company focuses on R&D based on manufacturing capabilities cultivated by OEM, and has emerged in the industry. The company's R&D investment remained at around 4%. As of March 31, 2024, the company had 1,834 patents and 135 invention patents. The company is also one of the four sanitary ware companies that have won the title of “National Industrial Design Center”, and has leading manufacturing advantages. The company has a production capacity of about 1.8 million sets of smart toilets, which is estimated to be in the top three in the industry. Manufacturing advantages have continued to be realized in the domestic smart toilet business, accounting for nearly 50% of revenue. Independent brands are flourishing online & offline, and products cover the full price range, mainly hot models; OEM customers include domestic bathroom leading brands, etc.
The manufacturing advantage is the spear, and Rieter has plenty of space to go out to sea
Demand for smart toilets overseas is improving, and space to go out to sea can be expected. The global smart toilet market is expected to reach 11.4% CAGR in 2028, with outstanding growth. Among them, the penetration rate of markets such as Japan and South Korea is high, while the United States, the Middle East, etc. are potential export destinations for the company, and there is still plenty of room for improvement in the penetration rate. Looking forward to the future, with its advantages in smart toilet manufacturing, Rattle embraces overseas markets through two methods: domestic traders and direct connections with overseas customers, and the company's traditional OEM customers are also leading international companies, and it is expected to develop collaboratively.
Profit forecast: Independent brands are growing rapidly, and smart overseas opens up new space. I am optimistic that the company will grow with “own brand+OEM” two-wheel drive based on the advantages of smart toilet manufacturing. The company's own brands are growing rapidly online, offline store opening is accelerating, the home appliance channel is expected to contribute to growth, and the brand growth trend is excellent. There is plenty of space to go overseas, and the company's target market has high potential development space in the United States/Middle East. 2024 is a year of accelerated smart overseas, and marginal contributions can be expected. The company is expected to generate revenue of 26.8/32.5/3.91 billion yuan in 2024-2026, +23%/+20% year-on-year; net profit to mother of 2.7/3.2/380 million yuan, +21%/+20%, corresponding to PE 18/15/13X, giving it a “buy” rating.
Risk warning
1. Overseas customer orders fell short of expectations; 2. Smart toilet promotion progress fell short of expectations; 3. The competitive landscape of the industry deteriorated drastically; 4. Profit prediction assumptions were unfounded or fell short of expectations.