Qumei Home Furnishings Group Co.Ltd(603818) (603818)
Key investment points
With the introduction of strategic investors, Ekornes’s valuation increased slightly to RMB 6.045 billion
According to the letter of intent on equity financing, Hillhouse investment and Yinti consulting plan to invest 200 million yuan and 25 million US dollars respectively in qumeirunto, a wholly-owned subsidiary of the company, to support the development of the company. Qumeirunto is a special purpose company established when the company acquired ekornesas in 18 years. In this financing, ekornesas is valued at RMB 6.045 billion, corresponding to 20-year pe16x, which is slightly higher than RMB 5.768 billion when the company acquired 9.5% shares in July 21. Based on the current valuation, Hillhouse investment and Yinti consulting will obtain 3.31% and 2.63% of Ekornes shares respectively. According to the letter of intent, investors will enjoy the option of taking the higher one between the subscription valuation and the current round of transaction valuation as the overall valuation before capital increase in the future. In addition, Hillhouse investment and Yinti consulting have the right to appoint one director each on the board of directors and enjoy the customary rights of strategic investors in the subject matter of investment.
The introduction of strategic investors is expected to form synergy, and stressless ushers in a new stage of growth
Ekornes grew rapidly after changing its management at the beginning of the 20th century. Its stressless products have strong brand power. China’s expansion stores are mainly shopping centers. Based on only 17 SKUs and small store area, it has formed a relatively efficient retail store with short recovery cycle and strong replicability. There are nearly 100 stores in 21h1 stressless China, with an order growth rate of more than 90%. IMG brand quickly completes its coverage in the form of store in store and relying on Qumei’s existing channels. The strategic investors introduced this time have investment and management background in multiple industries and rich resources and experience. Joining the board of directors after financing can provide long-term empowerment for the company, which is expected to form synergy with the company’s global expansion and accelerate stressless growth.
Financing to enhance liquidity may further reduce financial leverage and release profit elasticity
In 2018, the company spent 3.677 billion yuan to acquire ekornes90 5% equity, forming a large number of interest bearing liabilities. In 18-20 years, the company paid interest of 139 / 293 / 261 million yuan respectively. As of 21q3, the balance of interest bearing liabilities of the company exceeded 3 billion yuan. The high interest expense has put pressure on the company’s performance in recent years, The financing of 360 million yuan (exchange rate 1:6.36) will save about 27 million yuan in financial expenses in the whole year if it is used to repay debts at the beginning of 22 years. In addition, the company will further promote debt replacement and repayment of debts with its own operating cash flow in 22 years, reduce financial leverage and release profit elasticity. We expect the financial expenses of the company to be 2 / 1.4/0.8 billion yuan in 21-23 years respectively.
Profit forecast and valuation
Considering that the company’s introduction of strategic investors is faster than expected and is expected to further accelerate the implementation of debt replacement in 22 years, we raised our profit expectation. It is expected that the company will achieve a revenue of 5.63/66.7/7.57 billion yuan in 21-23 years, an increase of 32% / 18% / 13% respectively, and a net profit attributable to the parent company of 280 / 50 / 690 million yuan, an increase of 170% / 79% / 38% respectively, corresponding to the current pe29 / 16 / 12, maintaining the “buy” rating.
Risk statement
Ekornes’s expansion in China was less than expected; The demand of overseas market is declining; The progress of debt replacement was less than expected.
