Chenguang Co., Ltd. ( Shanghai M&G Stationery Inc(603899) )
The five-year development strategy of 2021 has made a “good start”, and the annual revenue and net profit increased by 34% and 21% respectively year-on-year. According to the annual report issued by the company, the operating revenue in 2021 was 17.607 billion yuan, with a year-on-year increase of 34.0%; The net profit attributable to the parent company was RMB 1.518 billion, with a year-on-year increase of 20.9%, mainly driven by the steady growth of traditional core business and the continuous high growth of new business office direct selling kelip and Jiumu sundry agency, a large retail store. In 21 years, Q1 / Q2 / Q3 / Q4 revenue increased by 83% / 45% / 18% / 19% and net profit attributable to parent company increased by 43% / 44% / 0.6% / 17% respectively. The performance improved month on month in the fourth quarter. Looking back on the performance of the past six years, the company achieved high-quality growth as a whole from 2015 to 2021, with operating revenue and net profit attributable to parent CAGR of 29.4% and 23.8% respectively.
The stationery business is basically stable. The number of primary, junior and senior high school students is expected to increase steadily in the next five years, and the market share of the company still has room to improve. In terms of quantity, although the number of new students has declined in recent years, from the perspective of the number of students in each school age section, except that the number of primary school students will increase first and then decrease in the next five years, the number of other school sections will increase steadily. Therefore, it is expected that the overall number of students will maintain a steady increase, and the impact of the decline of new students in recent years is limited. In terms of price, with the relative weakening of volume contribution, more growth of the industry comes from product upgrading and price increase. Based on the above, it is estimated that the market space of student stationery will reach 72.3 billion yuan by 2025, with steady growth. In 2020, China’s writing tool brand Cr5 was about 38%, of which Chenguang accounted for 23%. We believe that although the company has a market share of more than 20% in the subdivided field of writing tools, there is still much room for improvement in the share of large categories of stationery industry. The introduction of the double reduction policy in 2021 is expected to accelerate the liquidation of the stationery industry, and there is still room to improve the industry concentration.
Traditional core business: channel quality and efficiency improvement, price increase + category expansion drive the improvement of product power. The company’s traditional core business has achieved remarkable results in improving channel quality and efficiency, and gradually realized the transformation from a wholesaler to a brand retail service provider. By 2021, the company has more than 80000 retail terminals using ” Shanghai M&G Stationery Inc(603899) ” store recruitment in China, with a single store purchase volume of about 99000 yuan and increasing year by year, with an annual revenue of 7.96 billion yuan, a year-on-year increase of 19.4%. The product side company continues the high-end strategy. At present, the products have formed four tracks: mass products, high-quality cultural and creative products, children’s art and office products, forming a driving engine of price increase + category expansion; Among them, the unit price of writing instruments and student stationery increased by 3.6% and 5.2% respectively in 15-21 years; The company acquired the perfect wooden pencil category of ASUS in 19 years, and acquired 91.4% equity of Beckmann Beckman, a Norwegian high-end professional spine bag brand, in August 21 to expand the non stationery category.
New business: office direct sales + retail stores + second pole of growth driven by Chenguang technology. After more than 10 years of development, office direct selling klip has become a leader in B2B office materials, leading the industry in digital applications and providing in-depth services to major government enterprises. The annual revenue was 7.766 billion yuan, a year-on-year increase of 55.3%, the net profit was 242 million yuan, the net interest rate increased to 3.1%, and the CAGR was 80.1% in 201521, significantly driving the overall growth. As the bridgehead of brand upgrading, large retail stores are committed to building a new retail brand of medium and high-end cultural and creative groceries, with an annual revenue of 1.05 billion yuan, a year-on-year increase of 61%. They have 523 stores across the country. At present, the revenue of a single store is about 2 million / year, and the model is becoming more and more mature. As the main operator of the company’s online business, Chenguang technology complies with the trend of channel diversification and directly reaches users. It has thousands of authorized stores in e-commerce channels such as Taoxi, jd.com and pinduoduo. Chenguang technology achieved a revenue of 527 million yuan in 2021, an increase of 11.3% year-on-year.
Profit forecast and investment rating: continue to be optimistic about the company’s traditional core business with strong channel power and product power. Focus on deep cultivation at the channel end Wuxi Online Offline Communication Information Technology Co.Ltd(300959) and advance at the same time. The improvement of high-end price at the product end + category expansion drive the improvement of product power. At the same time, the new business of office direct sales and retail stores is developing rapidly. It is estimated that the net profit attributable to the parent company from 2022 to 2024 will be 1.793 billion yuan, 2.14 billion yuan and 2.564 billion yuan respectively. At present (2022 / 3 / 29), the share price corresponds to 25X PE in 22 years, and the “buy” rating is given for the first time.
Risk factors: product upgrading is less than expected, and the cost of raw materials rises sharply.
