Recommended logic: according to the explanation of China Household Appliances Association, the market size of electric blanket in China is about 5.3 billion yuan in 2018. According to the data of China Business Industrial Research Institute, it is expected that the market size of insecticide and mosquito repellent in China is expected to exceed 10 billion yuan by 2022. As the leader of electric blanket industry (market share is 11.5% in 2018), the company ploughs the southwest region. As the company raises funds to expand production, break through capacity bottlenecks, enhance the production capacity of high-end products; improve channel construction, expand the number of dealers in the non-southwest region, business is expected to grow steadily.

Flexible heater industry leader, the historical performance of steady growth. The company is mainly engaged in the production and sales of electric blankets, electric mosquito repellent liquid and other products, is the leading enterprise in China's electric blanket industry, and the sales volume of electric blankets ranks first in the country from 2016 to 2018. The historical performance has grown steadily, with a compound growth rate of 8.4% in revenue and 12.7% in net profit from 2017 to 2020. With the recovery of operations after the epidemic, superimposed on the low base in the same period last year, 2021Q1 achieved revenue of 290 million yuan, an increase of 51.4 percent over the same period last year, and a net profit of 40 million yuan, an increase of 48.9 percent over the same period last year.

The market of flexible electric heaters is growing steadily, and the pattern of sanitary insecticidal needs to be optimized. According to the China Household Appliances Association, the sales revenue of electric blankets in China in 2018 is about 3.6 billion yuan (the amount sold by manufacturers). If the export amount of the manufacturer is added, the overall market size of electric blanket is about 5.3 billion yuan. In terms of household hygiene and insecticidal market, China is the world's largest market for insecticides and mosquitoes, with great potential for growth. According to data from the China Business Industrial Research Institute, the average annual compound growth rate of retail sales in China's insecticidal and mosquito repellent market reached 8% from 2015 to 2019, and it is expected that the size of the Chinese market is expected to exceed 10 billion yuan by 2022. In addition, the domestic sanitary insecticidal market has a large number of enterprises, small scale and low industrial concentration. With the help of the policy, the head enterprises continue to strengthen the advantages of manufacturing and marketing channels, and the competition pattern of the industry is expected to be further optimized.

Raise funds to expand production and break through the bottleneck of production capacity, waiting for the expansion of channels to accelerate development. At present, the company has successfully issued and listed, and plans to invest 320 million yuan to build a "flexible electrothermal products industrialization project" to make up for capacity deficiencies and enhance the production capacity of high-end products. It is estimated that after full production, the production capacity of electric blankets will reach 7.2 million beds and the number of electric hand heaters will also reach 6.17 million. In terms of sales channels, the company has adopted the sales model of "distribution first + direct sales as a supplement".

2020H1's distribution revenue accounted for 87.9% of the main revenue. Rainbow Group is located in the southwest, its main production sites and operating camps are located in Chengdu, and the southwest accounts for more than half of the income. As the company further improves the channel construction and expands the number of dealers in the non-southwest region, it is expected to develop steadily in the future.

Profit forecast and investment advice. It is estimated that the EPS from 2021 to 2023 will be 1.58 yuan, 1.76 yuan and 1.90 yuan respectively, and the net profit of homing will maintain a compound growth rate of 11% in the next three years. With the continuous expansion of the company's distribution network and the gradual improvement of the channel layout, with reference to the company's unanimous expectations, the company will be given a "hold" rating for the first time.

Risk hint: extremely warm winter weather affects product sales risk, raw material prices or significant fluctuations risk.