Zhejiang Natural Outdoor Goods Inc(605080) (605080)
The company is a head manufacturer in the outdoor sports segment. 1) The company is mainly engaged in the R & D and production of inflatable mattresses, outdoor bags and headrest cushions, of which inflatable mattresses are the main core category, accounting for about 70% of sales. 2) At present, the company has established long-term and stable cooperative relations with more than 200 global brands such as downstream decathlon, sea to summit and REI. 3) Past performance has grown rapidly. In 2020, the company’s operating revenue was 580 million yuan, and the CAGR in recent three years was 7%; The performance is 160 million yuan, with a CAGR of 40% in recent three years. 4) The fluctuation of overseas epidemic situation drives the upswing of outdoor sports boom, and downstream demand drives upstream orders. In the first three quarters of 2021, the company’s revenue / performance increased by 47% / 43% to RMB 660 / 180 million respectively, with rapid business growth.
Industry: the development of Europe and the United States is mature, and the epidemic situation promotes the prosperity of the industry. 1) The global market is growing steadily, and the CAGR is expected to be about 7% in the future. 2) The popularity of outdoor sports in Europe, America and other developed countries is high, In 2017, American consumers spent $184.5 billion on outdoor sports equipment and supplies (up to $567.3 per capita). 3) the normalization of covid-19 epidemic drove people’s willingness to outdoor activities, and the change of consumption habits boosted the development of outdoor supplies industry. 4) the company is one of the leading manufacturers in subdivided fields, with competitors scattered in North America, Europe and other places.
Production side: complete industrial chain layout, thick profit, high efficiency and barriers. 1) The production capacity continues to expand. In 2020, the production capacity of inflatable mattresses will reach 4 million pieces, mainly in China and newly in Southeast Asia. 2) Covering the upstream and downstream key processes, the longer production chain brings excellent profit margin. In 2020, the gross profit margin / net profit margin is as high as 40.7% / 27.4% respectively, which is significantly higher than that of the same industry. 3) ODM mode is the main mode with strong R & D capability. In 2020, ODM mode accounts for 77%, and new products are continuously developed for downstream demand. 4) It has high production efficiency in various categories, attaches importance to automation and intelligence, and plans to invest 660 million yuan to build and transform automation bases in China.
Demand side: strong downstream demand and cooperation with high-quality customers. 1) The epidemic gave birth to the rise of the outdoor trend, and the downstream demand in Europe and America was strong, driving the orders of upstream companies. In 2020, the number of people participating in outdoor activities in the United States accounted for + 2.3pcts to 53.0%, and more than 60% of the company’s products were sold to Europe and North America. 2) Excellent customer resources. ① With a wide range of cooperative brands and more than 200 customers, it basically includes world-famous outdoor brands, which is convenient for business development. 2) Deeply cooperate with the head brand. In 2020, Decathlon, the first largest customer, accounted for 33% / the top five customers accounted for 47%.
Financial side: excellent profit quality and rapid performance growth. 1) Revenue is expected to grow rapidly, and CAGR is expected to be 30% in the next three years. In terms of volume price split: ① price: the optimization of product structure is expected to drive the unit price to continue to increase (CAGR is expected to be 14% in the next three years); ② volume: the industry boom, order demand and capacity expansion are expected to drive the growth of sales volume (698w pieces in 2020, CAGR expects 18% in the next three years). 2) excellent profit quality, excellent cost control, and it is expected that the gross profit margin will remain nearly 40% in the future. 3) the performance has increased rapidly in the past, and the net profit margin will be as high as 27% in 2020, which is expected to remain at a high level in the future.
Investment advice The company is a leading manufacturer in the field of outdoor products, with a strong industrial chain and excellent customer resources. We expect its performance to grow rapidly in the future. We predict that from 2021 to 2023, the net profit attributable to the parent company will be RMB 230 / 2.9 / 360 million respectively, with a CAGR of about 32%. The current stock price corresponds to 25 times of PE in 2022, with a current market value of RMB 7.3 billion and a target market value of RMB 9 billion. For the first time, give a “buy” rating.
Risk warning: risk caused by covid-19 epidemic fluctuation; Price fluctuation risk of raw materials; Less than expected risk of capacity expansion; Order fluctuation risk of key customers; Exchange rate fluctuation risk.
