Chenguang Co., Ltd. ( Shanghai M&G Stationery Inc(603899) )
Event: on March 29, Chenguang released its annual report for 2021. In 2021, the company realized an operating 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 non net profit attributable to the parent company was 1.35 billion yuan, a year-on-year increase of 22.38%.
The performance of 21q4 increased steadily and the fundamentals maintained continuous improvement
2021 is the beginning year of the company’s new five-year strategy. The company uses new development concepts to improve development quality and efficiency, steadily promote the implementation of the company’s development strategy and business plan, comprehensively promote the stable development of traditional core business, continuously develop and expand new business, and maintain healthy and qualitative development. Benefiting from the steady growth of traditional core business, the new business office direct selling Chenguang kelipu and Jiumu sundry agency, a large retail store, continued to maintain rapid growth, and the company’s revenue and profit achieved rapid growth in 2021. On a quarterly basis, the operating revenue of Q1, Q2, Q3 and Q4 in 2021 reached RMB 3.812 billion, 3.874 billion, 4.465 billion and 5.456 billion respectively, with a year-on-year increase of 82.96%, 44.68%, 18.25% and 18.61%; The net profit attributable to the parent company was RMB 328 million, RMB 338 million, RMB 451 million and RMB 401 million respectively, with a year-on-year increase of 42.50%, 44.34%, 0.57% and 16.98%. The company’s performance in Q4 single quarter increased steadily, the overall performance slightly exceeded expectations, and the company’s fundamentals continued to improve.
The revenue of traditional core business increased steadily than expected, and the brand, channel and product still took the lead in an all-round way
In 2021, the traditional core business (excluding Chenguang Technology) increased by 17.9% year-on-year to 8.26 billion yuan, of which 21q4 increased by 5.1% year-on-year to 2.21 billion yuan. Benefiting from product upgrading and channel efficiency improvement, the steady growth of traditional business slightly exceeded expectations. The short-term profit level decreased slightly, which we believe is mainly affected by the rise in the price of raw materials. After at least two flood tests, the company’s response measures have gradually matured, the negative impact of the double reduction policy has actually been gradually improved, and the moat of the company’s traditional business is still strong enough in the medium and long term. The company continues to promote the optimization and upgrading of product structure and channel upgrading to improve efficiency: in terms of products, the company further optimizes the product structure by increasing the proportion of high-quality cultural and creative products, high-end customization and other products, as well as expanding quality education and educational products; Channel: upgrade the image of stores, promote the transformation of wholesalers into retail service providers, actively empower dealers and continuously improve channel efficiency. The company has actively responded to the impact of the double reduction policy. There is still much room for development in China’s foreign markets in the medium and long term. We believe that the overall good situation of the traditional business remains unchanged. It is expected that the company’s traditional core business will maintain a growth of 10% – 15% in the medium term.
Klip’s revenue performance was beautiful, in line with expectations, and roe remained upward
In 2021, the office direct sales business of klip achieved a revenue of 7.77 billion yuan, a year-on-year increase of 55.3%, of which the revenue growth rate of 21q4 was 32.5%, which was beautiful and in line with expectations; The annual net profit of klip business was 240 million yuan, the net interest rate increased by 0.2pct to 3.1% year-on-year, and the roe increased by 5.5pct to 34.8% year-on-year, maintaining an upward trend. Klip is committed to providing one-stop office procurement service solutions. It has maintained strong growth in recent years by continuously expanding large and medium-sized customers such as the government, central enterprises and the world’s top 500. With the rapid increase of revenue volume and scale, the bargaining power of the company to the upstream and downstream industrial chain is further improved. At the same time, the company continues to optimize the customer structure and enhance its fee control ability. It is expected that the profit margin of kelip’s office direct sales business may increase steadily.
The business model of Jiumu debris agency has gradually matured, and the operation speed and quality coexist
In 2021, the business income of large retail stores was 1.05 billion yuan, with a year-on-year increase of 61.0%, of which Jiumu sundry agency achieved 950 million yuan, with a year-on-year increase of 70.0%; Chenguang living hall realized a revenue of 100 million yuan, a year-on-year increase of 8.5%. In 21q4, the revenue of large retail stores in a single quarter was 280 million yuan, a year-on-year increase of 25.3%; Among them, Jiumu sundry agency realized an income of 250 million yuan, a year-on-year increase of 27.4%. The company continuously strengthens the operation ability of stores through omni-channel marketing promotion and optimizing product portfolio. By the end of 2021, the company had 523 Direct stores, including 60 living halls and 463 Jiumu stores (319 Direct stores and 144 franchisees), a decrease of 20 and an increase of 102 respectively compared with the beginning of 2021. Jiumu sundries agency continues to promote the implementation of a new round of five-year strategic positioning, and gradually becomes the bridgehead of Chenguang brand and product upgrading, as well as the country’s leading medium and high-end cultural and creative grocery retail brand, with great medium and long-term development potential.
Investment suggestion: as a master of Chinese and foreign stationery, the company’s traditional business product channels continue to upgrade, and new businesses such as Chenguang kelipu and retail stores are growing rapidly, with high-quality promotion on one body and two wings. Considering that the repeated impact of the epidemic in some areas is still unclear, we expect the operating revenue of Chenguang Co., Ltd. to be RMB 21.014 billion, RMB 25.224 billion and RMB 30.324 billion from 2022 to 2024, with a year-on-year increase of 19.35%, 20.03% and 20.22%; The net profit attributable to the parent company was 1.763 billion yuan, 2.063 billion yuan and 2.417 billion yuan, with a year-on-year increase of 16.18%, 17.01% and 17.16%. The corresponding PE was 26.2x, 22.4x and 19.1x, giving a Buy-A investment rating.
Risk warning: the risk of repeated epidemic in some areas; New business development is less than expected risk; The impact of the double reduction policy exceeds the expected risk.
