Chenguang Co., Ltd. ( Shanghai M&G Stationery Inc(603899) )
Event overview (see text analysis for details)
Chenguang released its annual report for 2021: in 2021, the company realized a revenue of 17.607 billion yuan, a year-on-year increase of + 34.02%; The net profit attributable to the parent company was 1.518 billion yuan, a year-on-year increase of + 20.90%; The net profit attributable to the parent company after deduction was 1.35 billion yuan, a year-on-year increase of + 22.38%. Quarterly, Q4’s revenue in a single quarter was 5.456 billion yuan, a year-on-year increase of + 18.61%; The net profit attributable to the parent company was 401 million yuan, a year-on-year increase of + 16.98%; The net profit attributable to the parent company after deduction was 357 million yuan, a year-on-year increase of + 15.35%. Q4’s revenue grew steadily and its performance slightly exceeded previous expectations.
Analysis and judgment:
Split by channel: traditional businesses are under pressure in the short term, while new businesses maintain rapid growth.
By channel:
1) traditional core business: in 2021, the company’s traditional core business revenue reached 8.88 billion yuan, a year-on-year increase of + 17%. Among them, we expect that the traditional core business revenue in Q4 will increase by nearly 5% year-on-year in a single quarter, and the growth rate will slow down slightly. It is expected that it will be mainly affected by the high base in the same period of last year, repeated outbreaks and double reduction policies. In terms of profitability, we estimate that the profitability of traditional core business will decline slightly in 2021, which is expected to be mainly affected by the rise of raw material prices. We believe that despite the pressure in the short term, the moat built by Chenguang in the traditional core main business has not changed, and the brand strength, channel strength and product strength still maintain the leading edge. In addition, 2021 is the beginning year of the company’s new five-year strategy. The company should improve the development quality and efficiency with new development concepts, accelerate the optimization of product structure and the upgrading of terminal stores in traditional business, and increase the customer unit price Single store revenue and profitability are expected to further improve. In the medium and long term, thanks to the improvement of China’s market share and the strength of overseas markets, the company’s traditional core stationery business is expected to maintain a growth of 10% – 15% in the medium term.
2) Chenguang kelipu: Chenguang kelipu achieved a revenue of 7.766 billion yuan in 2021, with a year-on-year increase of 55.30%; The net profit was 242 million yuan, a year-on-year increase of + 68.24%; The gross profit margin was 9.37%, with a year-on-year increase of -1.61pct. Quarter by quarter, the revenue of Chenguang kelipu in Q4 single quarter was 2.833 billion yuan, a year-on-year increase of 32.54%. Due to the continuous growth of the company’s financial terminal business, such as the continuous increase of the company’s warehouse and distribution efficiency, as well as the continuous increase of the company’s customers. The gross profit margin has decreased, which is expected to be mainly affected by the change of the company’s product structure and the increase of the proportion of landing service providers. In the medium and long term, with the gradual expansion of the business scale of klip and the exertion of the scale effect, the profitability is expected to be gradually improved and the operation quality will be continuously improved.
3) large retail stores: in 2021, Chenguang living hall (including Jiumu sundries agency) achieved a revenue of 1.054 billion yuan, a year-on-year increase of 60.96%. Among them, Jiumu sundry agency realized an income of 949 million yuan, a year-on-year increase of 70.01%. Quarter by quarter, in Q4, Chenguang living hall (including Jiumu sundries agency) achieved a revenue of 280 million yuan, a year-on-year increase of 25.32%. Among them, Jiumu sundry agency realized an income of 252 million yuan, a year-on-year increase of 27.42%. The revenue of new retail business continued to grow rapidly, mainly due to the gradual recovery of passenger flow and the acceleration of the company’s opening of new stores. By the end of 2021, Jiumu had 463 stores, including 319 Direct stores (Q4 net increase of 20) and 144 franchisees (Q4 net increase of 7). Jiumu sundries agency has implemented a new round of five-year strategic positioning, becoming the bridgehead of Chenguang brand and product upgrading, and the leading medium and high-end cultural and creative grocery retail brand in China. In the medium and long term, Jiumu sundry club has a clear strategy, and with the continuous promotion of franchise opening and high-end promotion, it has great development potential in the future.
4) Chenguang Technology: in 2021, Chenguang technology achieved a revenue of 527 million yuan, with a year-on-year increase of 11%; Among them, in Q4, Chenguang technology realized a revenue of 131 million yuan in a single quarter, a slight decrease of 2.8% over the same period. Chengkwai technology and the track together to build online product development unified rhythm, standards and processes, the use of multi store + flagship store fine operation, accelerate the new channel business such as jitter, tiktok, Xiaohong book, and promote the refinement of membership management. In addition, continuously improve the quality of online development, continuously optimize the direct business structure, promote online distribution, focus on the increase of the sales proportion of head stores, and continuously improve the investment efficiency. At present, Chenguang technology is still in the brand and channel investment period, and the income scale is still low, and the profitability has not been reflected. It is expected that the profitability will gradually improve with the expansion of business scale.
5) acquisition and Merger: in August 2021, the company invested 250 million Norwegian kroner (about 184 million yuan) to acquire 91.4% equity of Beckmann Beckman, a Norwegian professional spine bag brand. Beckmann Beckmann, as one of the brands of “professional” student spine bag in the world, has 75 years of professional spine bag experience, has more than 75% market share in Norway, and provides products and services to consumers in more than 20 countries. The acquisition of Beckmann Beckman from Norway is Shanghai M&G Stationery Inc(603899) the first acquisition of a brand from northern Europe and the first acquisition of a high-end spine bag brand. Beckman is expected to accelerate the development of the Chinese market by combining the advantages of Chenguang channel and supply chain. In 2021, Beckman sold 120 million yuan, and the operating income included in the consolidated statements was 21 million yuan.
Split by product: the main business maintained steady growth and the gross profit rate decreased slightly.
In 2021, the company’s sales of writing instruments, student stationery, office stationery, other products and office direct sales were RMB 2.820 billion, 31.28 billion, 33.38 billion, 549 million and 7.766 billion respectively, with a year-on-year increase of + 23.65%, + 15.61%, + 18.32%, + 69.81% and + 55.30% respectively; The gross profit margin was 40.57%, 33.10%, 27.91%, 44.76% and 9.37% respectively, with a year-on-year increase of -0.25pct, -0.33pct, -0.34pct, + 0.48pct and -1.61pct respectively.
By quarter, the sales of writing tools, student stationery, office stationery, other products and office direct sales in Q4 single quarter were 447 million yuan, 750 million yuan, 1259 million yuan, 165 million yuan and 2833 million yuan respectively, with a year-on-year increase of + 8.60%, + 8.39%, + 2.38%, + 30.24% and + 32.54% respectively; The gross profit margin was 43.65%, 32.78%, 30.69%, 41.73% and 9.07% respectively, with a year-on-year increase of -0.63pct, + 1.39pct, -0.21pct, + 0.79pct and + 0.42pct respectively. The gross profit margin of student stationery, other products and office direct sales increased, while the gross profit margin of writing tools and office stationery decreased slightly.
Profitability: during the period, the expenses were well controlled, and the profitability decreased slightly compared with the same period. In terms of period expense rate, in 2021, the company’s period expense rate increased from -0.99pct to 13.28% year-on-year, and the sales expense rate / management expense rate / R & D expense rate / financial expense rate increased from -0.46pct / – 0.36pct / – 0.15pct / – 0.03pct to 7.94% / 4.23% / 1.07% / 0.04% year-on-year respectively. Quarter by quarter, the company’s expense rate in Q4 single quarter increased from + 0.28pct to 12.30% year-on-year, and the sales expense rate / management expense rate / R & D expense rate / financial expense rate increased from + 1.02pct / – 0.51pct / – 0.14pct / – 0.08pct to 7.75% / 3.82% / 0.66% / 0.08% year-on-year respectively.
The decrease in expense rate was mainly due to the use of the new accounting standards, and the relevant freight was transferred from the sales expense account to the operating cost account.
In terms of profitability, in 2021, the company’s gross profit margin and net profit attributable to the parent company were -2.15pct, -0.94pct to 23.21% and 8.62% respectively, of which the gross profit margin and net profit attributable to the parent company in Q4 were -1.05pct, -0.10pct to 21.11% and 7.34% respectively. The profitability has declined, which is expected to be mainly affected by the rise in the price of raw materials, the change of accounting standards, the conversion of freight to operating cost and the change of business structure.
Q4 performance slightly exceeded expectations, and the medium and long-term integration and two wings continued to work.
With the opening of school and the resumption of work of enterprises, the terminal demand will be boosted, and the company will steadily promote the business layout, and the performance of 2021q4 company will slightly exceed the expectation. In the medium and long term, the company will continue to make efforts with one body and two wings, and the stationery leader will continue to move forward to the cultural and creative giant. Among them, the traditional business has changed from “increment” to “quality improvement”, the channel has been optimized to improve efficiency, the high-end has been continuously promoted, the structure has been optimized, and the profitability has been gradually improved; With the increasing number of customers, the scale effect will be brought into play, the net interest rate will be significantly improved and gradually enter the profit harvest period; The new retail channel model is mature, the speed of franchise opening is accelerated, and the profit is expected to be significantly improved; The overseas market has accelerated the exploration and promoted the business model according to local conditions. At present, initial results have been achieved.
Investment advice
We believe that there is room for volume and price improvement brought by the upgrading of Chenguang’s traditional business product channels, and the new business is entering the harvest period. The company is gradually transforming and upgrading from a leader in stationery to a cultural and creative giant, and is optimistic about its development prospects. Recently, the company has announced that the term of the shareholding increase plan of the controlling shareholder has expired (keying investment and jiekui investment have increased a total of 176 million yuan), highlighting the company’s confidence in future development. We maintain the previous profit forecast. It is estimated that the operating revenue in 22-23 years will be 21.563/26.590 billion yuan respectively, and the operating revenue in 2024 is expected to be 31.701 billion yuan; EPS in 22-23 years is 1.97/2.39 yuan respectively, and EPS in 2024 is expected to be 2.83 yuan, corresponding to the closing price of 49.81 yuan / share on March 28, 2022, and PE is 25 / 21 / 18 times respectively, maintaining the “buy” rating of the company.
Risk tips
Risk of sharp decline in the demand for traditional stationery; New business is less risky than expected.
