Author | Li Xin
Edit | Ding Di
In 2022, home appliance stocks will usher in a rebound?
Guosen Securities Research Report believes that in 2021, the home appliance sector is affected by the weakening of the demand margin, the increase in upstream costs and the pressure of supply chains such as shipping and chips, and the correction in valuation has been relatively sufficient. In 2022, the home appliance sector is expected to achieve Davis double-click in terms of value and growth.
Among them, small household appliances are the fastest growing home appliance category in the current market size.
According to the Frost & Sullivan report, the global small household appliance market size has increased from $77.9 billion in 2014 to $98.3 billion in 2018, and it is expected that the small household appliance market size will reach $144.6 billion in 2023, with a compound annual growth rate of 8.0% from 2018 to 2023, higher than major home appliances such as air conditioners, refrigerators, washing machines and kitchen appliances such as hoods, gas stoves, and dishwashers.
Guojin Securities said that the small household appliances sector, as a key beneficiary sector of the third consumer society, continues to be optimistic about the new opportunities brought by new consumption to the small household appliances sector.
A few days ago, relying on electric toothbrushes to start, positioning a small household appliance track, in 2020 revenue of more than 1.3 billion yuan xiaomi ecological chain enterprise Sushi Technology (hereinafter referred to as "Sushi") applied for listing on the Gem, impacting the "first share of electric toothbrushes", the current review status is "inquired".
However, under a series of eye-catching gimmicks, Sushi's excessive dependence on millet, heavy marketing and light research and development have also attracted much attention. So does Sushi have a business moat, and does it have a large room for growth?
Electric toothbrush started, asset-light operation mode
The main business of Sushi is the research and development, design, production and sales of small household appliances. Products cover three categories: oral care, hair care, and hair care, including private brand and Xiaomi customized Mijia brand products. Among them, the private brand is mainly "Sushi", including "AIRFLY" and "Pinjing".
Sushi mainly adopts the asset-light business model of OEM production, and does not have a self-built production plant. In terms of sales channels, Sushi adopts a combination of online and offline models, of which mijia brands mainly use the millet model for sales, and the sales models of its own brands include direct sales, distribution and e-commerce platform warehousing.
Specifically, similar to most Xiaomi ecological chain enterprises, under the Xiaomi model, Sushi, as a supplier of customized products, provides Xiaomi brand products to Xiaomi, and the cooperative sales model is mainly divided, and a small number of products are direct sales models.
The direct sales channels of private brands include Tmall, Youpin, Douyin, Xiaohongshu, Pinduoduo and other e-commerce platforms and offline channels, and the e-commerce platform warehousing mode mainly refers to the sale through platforms such as Tmall supermarket, sending goods to the designated warehouse of e-commerce, and the e-commerce platform is responsible for order management and subsequent logistics and distribution.
The improvement of national consumption capacity, the rejuvenation of consumer structure, and the enhancement of personal health care awareness provide prerequisites for the development of the personal care small household appliance industry. According to the data of Jiefukai, the scale of the domestic personal care small household appliance market has increased from 13 billion yuan in 2015 to 41.6 billion yuan in 2019, with a compound growth rate of more than 30%.
At the same time, compared with developed countries, the penetration rate of domestic personal care small household appliances is still at a low level, with a large incremental space. According to data from the China Household Electrical Appliances Association, in 2016, the number of household personal care small household appliances in China was 30 units per 100 households, while the United States and Japan had 354 units and 126 units respectively.
In this context, Sushi continues to expand its product categories, launching toothbrushes and other peripheral products after entering the oral care track with electric toothbrushes, and then further expanding its business to the field of hair care and hair care, launching electric shavers, hair dryers and other products, and gradually forming a multi-category, multi-brand product layout.
From the perspective of revenue share, the proportion of oral care income has declined, but it is still the majority of revenue, contributing nearly 60% of the revenue. The proportion of hair care and hair care revenue has increased, but the increase is not large, accounting for 27.58% and 14.3% of revenue in the first half of 2021, respectively.
Figure 1: Revenue share by product category; Source: Prospectus
Figure 2: Revenue share of each product in the Dental Care category; Source: Prospectus
Figure 3: Proportion of Revenue of Sushi Hair Care Products; Source: Prospectus
Figure 4: Revenue share of Sushi hair care products; Source: Prospectus
In oral care products, the revenue share of electric toothbrushes has decreased year by year, but still reached more than 50%; the proportion of revenue from toothbrushes has increased rapidly, reaching 36.4% in the first half of 2021. Electric shavers and hair dryers are the main revenue generators in the hair care and hair care categories, accounting for more than 90% of revenue in 2018-2021H1.
Benefiting from the development of the industry and the expansion of categories, sushi's performance has achieved rapid growth. In 2020, Sushi's revenue was 1.371 billion yuan, an increase of 33.81% year-on-year, and the net profit attributable to the mother was 69.82 million yuan, a substantial increase of 91.93% year-on-year. From 2018 to 2020, the compound annual growth rate of Sushi's revenue reached 60.17%, the compound annual growth rate of net profit reached more than 22%, and the gross profit margin increased from 23.64% to 31.28%.
Enterprise risks over-reliance on Xiaomi
"Xiaomi Ecological Chain Company" once became the keyword of Sushi to build product reputation. However, behind this, the proportion of related party transactions with Xiaomi is too high, and the excessive dependence on Xiaomi for sales products and channels has also increased corporate risks.
The first is related party transactions.
According to the prospectus, Xiaomi holds 8.57% of the equity of Sushi through Tianjin Jinmi, which it controls, while Xiaomi's related party Shunwei Technology holds 10.90% of the shares of Sushi, which is the second and fourth largest shareholders of Sushi respectively. With such an ownership structure, there is a risk that Xiaomi's related parties will have an impact on Sushi's business decisions.
Xiaomi is both a related shareholder of Sushi and the latter's largest customer. The related sales of 2018-2021H1 accounted for 73.52%, 61.31%, 60.60% and 56.40% of the current period's revenue, respectively. Under the high proportion of related party transactions, once the purchase amount of Millet declines in the future, the performance of Sushi will be adversely affected.
The second is the excessive dependence on xiaomi for sales products and channels.
From the perspective of oral care and hair care products with a high proportion of revenue, the revenue from Mijia brand products is much higher than that of Sushi's own brand. Taking the first half of 2021 as an example, among oral care products, mijia brand electric toothbrushes and toothbrushes contributed 58.86% of revenue; in hair care products, mijia brand electric shavers contributed 63.26% of revenue.
From the perspective of sales model, the current revenue proportion of its millet model is still higher than that of its own brand sales model, and in the first half of 2021, the revenue of millet model accounted for 56.17%.
Since the Mijia brand pays attention to cost-effective positioning and mainly adopts the profit sharing model, the gross profit margin of Mijia brand products is lower than that of Sushi's own brand products, and the gross profit margin of xiaomi model is also lower than that of Sushi's own brand sales model, which will affect the overall gross profit level of Sushi company in the case of excessive dependence on millet in sales products and channels.
Taking electric toothbrushes as an example, from 2018 to 2021H1, the gross profit margin of Sushi brand electric toothbrushes was 24.89%, 33.17%, 43.41%, 51.19%, and the gross profit margin of Mijia brand electric toothbrushes in the same period was only 22.94%, 17.04%, 13.67%, and 17.56%.
It is worth noting that Sushi is also trying to get rid of its dependence on Xiaomi.
Although the Xiaomi model is still dominant, the revenue share has been declining. In 2018, the revenue of the Millet model accounted for 72.86%, and the revenue of the private label sales model increased from 27.14% in 2018 to 43.83% in the first half of 2021.
At the same time, in the private brand direct sales model, thanks to large-scale marketing promotion and other factors, Sushi's direct sales on third-party platforms such as Tmall, Douyin, and Xiaohongshu have increased significantly. In the first half of 2021, the proportion of Sushi's direct sales revenue on Tmall increased from 47.70% in 2018 to 91.15%, and the proportion of Xiaomi Youpin's direct sales revenue decreased from 50.39% in 2018 to 3.04%.
This shows that Sushi is accelerating to get rid of its dependence on Millet and has begun to show results. However, in order to truly get rid of the dependence on millet, Sushi also needs to establish a stronger private brand influence, which requires Sushi to continue to increase marketing and promotion efforts while enhancing product strength, which will inevitably be accompanied by the high cost of related costs, or short-term adverse effects on Sushi's performance.
Heavy marketing over research and development
As mentioned above, in order to increase the promotion of its own brands, Sushi's marketing methods are varied, including but not limited to cooperation with head anchors such as Li Jiaqi, celebrities and popular variety shows. The sales expense ratio soared accordingly, from 2018 to 2021H1, the sales expenses of Sushi were 43.5628 million yuan, 130 million yuan, 260 million yuan and 185 million yuan, and the sales expense ratios were 8.15%, 13.15%, 19.04% and 20.43% respectively.
Compared with the small household appliance company Feike Electric Appliances and the same millet ecological chain of Stone Technology, No. 9 Company and other peers, Sushi's marketing expense rate has far exceeded the average of comparable companies in the same industry.
Figure 5: Sushi sales expense ratio compared to comparable companies in the same industry; Source: Prospectus
Compared with the emphasis on marketing, Sushi's R&D investment is insufficient and the scientific and technological content is low. From 2018 to 2021H1, the R&D expenses of Sushi were 19.9341 million yuan, 50.038 million yuan, 45.9308 million yuan and 32.2526 million yuan, respectively, and the R&D expense rate was only 3.73%, 4.88%, 3.35% and 3.56%.
In 2020 and the first half of 2021, Sushi's selling expenses exceeded 5 times of R&D expenses, and the R&D expense ratio was also lower than the average of comparable companies in the same industry.
Figure 6: Comparison of Sushi R&D expense ratio with comparable companies in the same industry; Source: Prospectus
Personal care small household appliances have the characteristics of fast update speed and short iteration cycle, so there are higher requirements for the company's technology research and development and innovation capabilities. In the long run, heavy marketing and light research and development may lead to the inability of Sushi products to keep up, and the reputation will decline. As of press time, on the black cat complaint platform, there are 82 complaints about Sushi, and another domestic oral care brand, Usmile, has 38 complaints.
At present, the domestic personal care small household appliance industry is in the stage of brand competition, including overseas high-end brands represented by Philips and new domestic brands emerging in an endless stream. Among them, the market share and cost-effective advantage of the Sushi brand are not obvious, and if the product strength cannot be continuously improved in the future, it is possible to lose more market share.
Taking electric toothbrushes as an example, according to the Changjiang Securities Research Report, as of 2020, Philips, Oule B, and usmile are the top three domestic electric toothbrushes, with market shares of 24%, 11%, and 10% respectively, and there is no Sushi private brand in the top five in the industry.
Figure 7: Domestic electric toothbrush market share; source: Changjiang Securities
At the same time, under the trend of the industry gradually taking cost-effective consumption as the leading trend, the Sushi brand does not have a strong price advantage. According to the Changjiang Securities Research Report, from November 2020 to November 2021, the average price of electric toothbrushes of the Sushi brand was 337 yuan, second only to Philips of 411 yuan, higher than brands such as Oule B, Usmile, Feike, and Shuke.
Figure 8: Average price of electric toothbrushes by brand; Source: Changjiang Securities
summary
With the improvement of national consumption capacity, the willingness to consume and the awareness of personal health care have increased, the personal care small household appliance industry has developed rapidly and maintained a high degree of prosperity.
Benefiting from the good background of the industry, as well as orders and channel resources from Xiaomi, Sushi's performance has grown rapidly and gained high attention in the capital market.
However, the excessive dependence on the millet model has aggravated the risk of sushi's related party transactions, and also squeezed the profit margins of sushi to a certain extent. Therefore, Sushi urgently needs to reduce its dependence on Millet and continue to build its own brand. If Sushi's own brand is to form a brand effect, large-scale marketing promotion is indispensable. At the same time, the entry threshold of the personal care small household appliance industry is not high, so it is also crucial to continue to invest in research and development and form product competitiveness.
In the short term, a significant increase in selling expenses may adversely affect the performance level of Sushi. In the long run, in the case of continuous improvement of product strength, if the revenue growth rate brought by the brand effect outperforms the growth rate of expenses, the profitability level of Sushi may reach a relatively good state.
Resources:
Changjiang Securities "Electric Toothbrush Industry Special Topic: New Consumption, New Track, New Brand"
*Disclaimer:
The content of this article is representative of the views of the author only.
The market is risky and investments need to be cautious. In no event shall the information contained herein or the opinions expressed constitute investment advice to any person. Before deciding on an investment, investors must consult with a professional and make prudent decisions if necessary. We do not intend to provide underwriting services or any services that require specific qualifications or licenses to be performed by parties to the transaction.
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