Jason Furniture (Hangzhou) Co.Ltd(603816) (603816)
It is planned to invest in the construction of Mexico base. The company announced on December 14, 2021 that it plans to invest in the construction of Mexico’s self built base project in Monterrey, Mexico, and signed the letter of intent for land purchase on December 13, 2021. It plans to use US $19.15 million to purchase 363600 square meters of land ownership. The company expects the total investment of the project to be 1.037 billion yuan, of which the land cost is 127 million yuan, accounting for about 12.24%; Construction projects such as production workshops and warehouses amounted to 620 million yuan, accounting for 59.73%; Production and testing equipment amounted to 133 million yuan, accounting for 12.85%; The initial working capital was 158 million yuan, accounting for 15.2%. As of September 30, 2021, the company’s monetary fund balance is RMB 2.561 billion, and the project adopts the phased construction mode. We expect that this investment will not bring too much pressure on the company’s cash flow.
The full output value of the project reaches 3 billion yuan, laying a capacity foundation for overseas business expansion. The company expects that the Mexico base will be started in the first half of 2022, with a construction period of 36 months. The company expects that the first phase of the project will be completed and put into operation in the middle of 2023. The later construction will be planned according to the growth rhythm of market demand. When the overall project reaches the target, it is expected to realize an operating revenue of about 3.019 billion yuan. Since 2018, the company has actively deployed overseas production capacity to cope with international trade risks and expand the export market. By 2021, the company’s overseas production base is mainly Vietnam. The construction of Mexico base will help the company further improve the reserve of overseas production capacity and lay the foundation for subsequent business expansion.
Under the anti-dumping of American mattresses, the layout value of Mexican factories is outstanding. In 2020, the total mattress import of the United States was USD 1.591 billion, of which 80% came from five Southeast Asian countries such as Vietnam and Malaysia, Serbia and Turkey. At the end of 2020, the second round of anti-dumping of American mattresses landed. Among the seven countries mentioned above, except Indonesia, the other six countries were subject to high anti-dumping duties and could not export mattresses to the United States. The second round of American mattress anti-dumping superimposed on the prosperity of American real estate makes the supply of American mattress market tight. The layout of the company’s base in Mexico is expected to seize this opportunity and quickly increase its share in the American market.
The reform of domestic retail has accumulated strength for long-term development, and is optimistic about the continuous deepening of the big home line. The company continues to improve the layout of large household categories on the product side, deepen the channel reform of large store mode on the channel side, and the retail capacity continues to evolve. Specifically reflected in the improvement of retail turnover rate and the continuous enhancement of channel profitability, forming a strong endogenous growth drive; At the same time, capacity expansion laid the foundation for medium – and long-term growth.
Profit forecast and investment rating: the strategic path of the company’s domestic big home is becoming clearer, and the expansion of overseas production capacity will help to further improve the share and maintain the previous profit forecast. We expect the company’s net profit from 2021 to 2023 to be RMB 1.71 billion, RMB 2.08 billion and RMB 2.52 billion respectively, corresponding to pe26, 21 and 18x. As a leader in the soft furniture industry, the company has made solid progress in the retail home strategy, opened the growth ceiling and maintained the “buy” rating.
Risk tip: industry competition intensifies, raw material prices rise, exchange rate fluctuations, freight increases, etc.
