Author | Fan Liang
Edit the | Huang Yida Ding Dian
Cover source | Visual China
Maybe you haven't followed the gamebook, but you must have seen Thor and the mechanic.
Behind these two brands is a listed company called Raytheon Technology. If we dig into the actual controller of Raytheon Technology, we will see a more familiar name - Haier Group.
In 2014, Raytheon Technology was officially established, and its Raytheon 911 series of gaming notebooks began to be released. In the years that followed, Raytheon Technologies gradually expanded into desktops and peripherals. Since its inception, the young company has sold more than 2 million computers and about 5 million peripherals.
Supported by a lot of performance, Raytheon Technology's revenue scale also jumped from 523 million yuan in 2015 to 2.642 billion yuan in 2021.
Raytheon Technologies' revenue structure; Source: Wind, 36Kr collation
At the end of 2022, Raytheon Technology successfully logged on the Beijing Stock Exchange and officially joined the family of listed companies.
However, Raytheon Technology, which has a wide reputation, has lost its aura in the secondary market. On the first day of listing, Raytheon Technology's stock price fell by 12%, and as of the close of trading on January 9, Raytheon Technology has fallen by more than 20%.
Why doesn't the secondary market buy Raytheon Technology? Perhaps this is closely related to its business model and financial situation. In the general impression, computer brands should be classified as manufacturing, but if we see that only more than 4 million of Raytheon Technology's 1.2 billion assets are plants and equipment, we may find the answer to the company's endless decline.
Do computer brands have core technology?
Today, when smart phones are highly popular, many people more or less understand some of the "lace news" of the mobile phone industry chain. For example, mobile phone manufacturers are not directly involved in the production of mobile phones, their mobile phone screens may come from BOE or Huaxing Optoelectronics, chips may come from Qualcomm or MediaTek, and the whole machine manufacturing may be handed over to Foxconn.
This production model is highly similar to computer manufacturing, but mobile phone brands are significantly less controversial than the overwhelming doubts about the "technical content" of computer brands.
This is because mobile phones are highly personalized C-end consumer goods.
Although mobile phone brands are not directly involved in the production and manufacturing of mobile phones, in terms of hardware, mobile phone brands need to consider the appearance, size, screen, photography and other personalized needs of each generation of mobile phones, and then balance the matching of various components inside the mobile phone. In terms of software, mobile phone brands need to constantly optimize their operating systems.
As a result, mobile phone brands actually invest a lot of R&D resources for personalization.
The situation is different for computers.
From the perspective of categories, in addition to some light and thin office books, learning books and other ToC products have demand for personalization, ToB and ToG and other centrally purchased computers are only productivity tools for end customers.
In this case, the performance of the computer comes first, and personalization needs little to consider.
Once out of the shackles of personalization, in extreme cases, computer brands do not even need to change the appearance of each generation of laptops, nor do they need to distinguish the appearance from competitors, but use public molds provided by foundries. In addition, brand owners no longer need to consider the collocation, design and balance of various hardware.
Therefore, the computer industry has also formed a major industrial chain pattern in which brand owners purchase parts - foundries design and produce according to public molds - brand owners operate and sell.
This production model is very similar to what we know as OEM (Private Label Production). After purchasing key components such as chips, computer brands can safely leave everything to the foundry. For foundries, if each computer brand does not make changes to the appearance and internal design, then the shell mold and internal structure of the computer are similar. In this way, it is easy for foundries to take advantage of this "big item" effect to achieve economies of scale, which in turn greatly reduces the production cost of computers.
In this case, computer brands really have no "technical content", and their core competitiveness is based on supply chain management, sales channels, and marketing.
However, some spare computer brands such as Lenovo, Asus, etc. will not stop at OEM, but similar to mobile phone brands, personally invest research and development resources to participate in the design of their thin and light office books, learning books and other ToC products, and develop their own computer molds, and even build their own production lines for this purpose.
Of course, consumers need to pay extra for "design", which is one of the main reasons why "thin and light books" are expensive.
Business model: Raytheon Technologies is more like a marketing company
For Raytheon Technology, it chose a compromise between "OEM production" and "independent research and development": that is, selling gaming laptops with very strong tool attributes (high performance), but with certain consumer attributes.
This clever choice became the key to Raytheon Technology's revenue jumping from 523 million yuan to 2.642 billion yuan.
On the one hand, the performance requirements of end users of gaming notebooks are obviously above personalization, which means that Raytheon Technology does not need to invest too many R&D resources for "personalization", and can still adopt the OEM production model, relying on scale to obtain cost advantages. In the public evaluation of Raytheon Technology's products on the Internet, "cost-effective" has become the most obvious label of Raytheon.
On the other hand, the personalized demand of end users for gaming notebooks is not zero, and Raytheon Technology can adjust the appearance of notebooks in detail through its marketing capabilities and a small amount of R&D investment, so as to obtain differentiated competitiveness.
With Raytheon Technologies' financial data, we can gain a deeper understanding of this business model.
1. There are almost no fixed assets
In 2021, the total assets of Raytheon Technology reached 1.252 billion yuan, but because production was mainly handed over to foundries, the total fixed assets and projects under construction were only more than 6 million yuan.
From the perspective of foundry selection, Taiwanese Blue Sky Computer and Quanta Computer are the largest suppliers of Raytheon Technology, of which Quanta Computer is also the foundry of Apple notebook computers.
2. R&D investment is mainly outsourced
The R&D expense ratios of Raytheon Technology in 2019/2020/2021 were 3.24%/3.35%/4.18%, respectively. Although the R&D expense rate does not seem to be low, most of them are outsourced R&D, and the proportion of outsourced R&D in 2019/2020/2021 reached 72.50%/73.72%/75.75% respectively, and the company's own R&D capabilities are not strong.
Raytheon Technology also pointed out in the prospectus sincerely that its independent research and development capabilities are more focused on product planning, product creativity and appearance design, product overall scheme design and other links, and the specific implementation of product development plans is entrusted to outsourcing manufacturers.
To put it more bluntly, Raytheon Technology only decides what kind of configuration its products should take and what kind of appearance to choose, and how the product should be realized is directly handed over to the foundry.
Raytheon Technology's R&D expense structure; Source: Wind, 36Kr collation
3. Advertising is the bulk of sales expenses, and there is no channel expenditure
In 2021, the sales expenses of Raytheon Technology were 81.83 million yuan, of which 41.90% were after-sales maintenance costs, 40.50% were advertising and promotion fees, and only 10.96% were the salaries of sales personnel.
Raytheon Technology selling expenses; Source: Wind, 36Kr collation
It is not difficult to see that the company's sales expenses do not reflect the expenses related to sales channels, and even the after-sales maintenance costs are outsourcing costs.
This is because Raytheon has not invested too many resources in the construction of sales channels, and its various products mainly rely on a few large dealer channels for sales, and the proportion of direct sales is very low, and online sales are the mainstay.
In 2021, Raytheon Technology's direct sales revenue accounted for only 0.01% of distribution revenue, and the top five dealers accounted for more than 80% of operating revenue. Specifically, the largest distributor is the A-share listed company Eternal Asia, and the third largest distributor Box Internet is the actual operator of the Raytheon Taobao flagship store.
Raytheon Technologies customer structure
Source: Prospectus, 36Kr collation
The highly concentrated customer structure saves Raytheon Technology a lot of sales expenses, but the excessive concentration of sales channels also makes Raytheon Technology's business model too thin and fragile. Compared with competitors, Lenovo's top five customers account for only about 20%.
Through the comparison of several key financial data of Raytheon Technology, we can find that Raytheon Technology in the whole life process of computer design and development-manufacturing-sales, the most involved link is actually two: marketing and product program design.
Raytheon Technology, which is absent from key R&D links such as product development and manufacturing, is actually more like a marketing company than a technology company.
ROE is not dominant compared to its peers
Through the previous article, we have a certain understanding of the business model of Raytheon Technology. Here, we will analyze the financial performance of Raytheon Technologies from a quantitative perspective.
If from the perspective of ROE, using DuPont analysis method, and then comparing the financial data of Raytheon Technology with other competitors in 2021, we can find that Raytheon Technology's ROE is about 19.1%, which is a good level among listed companies, but it is far lower than Lenovo and MSI Technology, and slightly lower than Asus.
Comparison between Raytheon Technology and ROE in the same industry (2021)
Source: Wind, 36Kr collation
Further split, the low gross margin has become the main reason why Raytheon Technology's ROE is lower than that of competitors.
From the data of past years, the gross profit margin of Leishen is significantly lower than that of its peers, and the gross profit margin of the company in recent years has basically remained at 10%-12%, while the gross profit margin of competitors such as Lenovo Group, Asus, and MSI Technology has remained above 15%.
Raytheon Technology and peer gross profit margin comparison
Source: Wind, 36Kr collation
Regarding the reasons for the low gross profit margin of Raytheon Technology, Lenovo and Asus in the industry have the ability to independently develop and produce computers, and do not completely rely on foundries, while MSI Technology has fully achieved independent production.
Compared with Raytheon Technology, the gross profit margin of the above enterprises has two advantages: first, consumers are willing to pay higher prices for the independent research and development and production of brand owners; Second, there is no need to transfer part of the profits to the foundry.
Of course, Raytheon Technology's asset-light model also has merit, relying on high asset turnover to win back a game in terms of ROE.
Specifically, Raytheon Technology's total asset turnover in 2021 was 2.42, which is obviously in the leading position compared with Lenovo Group and Asus, while MSI Technology is close behind with excellent inventory and accounts receivable management capabilities.
In terms of ROE quality, from the perspective of high net profit margin, high turnover and low debt, among the above companies, the gross profit margin and turnover rate of Taiwanese enterprise MSI Technology are at a high level, and the ROE quality is the highest. Raytheon Technology, Lenovo Group, and Asus all have certain shortcomings, among which Lenovo is weak in terms of expense control capabilities, resulting in low net profit margins; ASUS has certain deficiencies in inventory and accounts receivable management, resulting in low asset turnover; Raytheon drove down net profit margin due to low gross margin.
While ROE looks passable, Raytheon Technologies' financial position is less than ideal from a cash flow perspective.
2020/2021/2022H1 Raytheon Technology's net cash flow from operating activities considering bill discounting was 0.53/0.9/186 million yuan, respectively, most of which were occupied by increasing inventory.
As of mid-2022, Raytheon Technology's book inventory has reached 721 million yuan, accounting for nearly 60% of total assets, and the number of inventory turnover days has also increased significantly from 58 days in 2019 to 78 days in 2021.
We know that electronic inventory is a category that is very prone to asset impairment, and Raytheon Technology's increasing inventory will undoubtedly cause investors to worry about asset impairment.
Valuation: Raytheon Technology is the highest?
Through the previous analysis, we know that although Raytheon Technology's asset-light model has certain merits in terms of asset turnover and product positioning, it has not opened a gap with several companies in the same industry in terms of ROE, and even has a little defect in financial performance.
However, from a valuation perspective, Raytheon Technology's price-to-earnings ratio is at its highest level.
As of January 9, Raytheon Technology's P/E-TTM ratio is about 18 times, but Lenovo Group, Asus, MSI Technology and other companies have a single-digit P/E level.
Of course, because the above companies are located in different trading markets, we can't actually directly compare valuations.
However, according to Lenovo Group's CDR prospectus in China in 2021, its valuation positioning in the A-share market is about 10 times PE, which is also far lower than Raytheon Technology's current price-to-earnings ratio.
This can't help but many investors wonder, why is the valuation of Raytheon Technology so high?
We know that the valuation level of the company itself is nothing more than affected by two factors, one is whether the company is high enough and sure enough to digest the high valuation through performance growth; The second is whether the company is a unique scarce target of the business in the market, and can obtain a high valuation due to transactional reasons.
From the perspective of growth, the revenue growth rate of Raytheon Technology in 2020/2021/2022H1 is 7.82%/17.21%/-2.66%, respectively, compared with other companies in the same industry, Raytheon Technology's revenue growth rate is close to Lenovo, far lower than ASUS and MSI Technology, and the performance is not bright.
Therefore, the growth of Raytheon Technology is not high.
Comparison of Raytheon Technology and peer revenue growth
Source: Wind, 36Kr collation
Naturally, scarcity has become the main reason for Raytheon Technology's high valuation.
On the one hand, there is a lack of computer brands among A-share listed companies. On the other hand, Raytheon Technology also bears the halo of "the first share of e-sports equipment listed". With the double blessing, Raytheon Technology naturally enjoyed a relatively high degree of attention in the market, and then obtained a certain premium in terms of valuation.
However, after the carnival, the market must eventually return to rationality, and even scarce targets need to be supported by fundamentals. At present, Raytheon Technology's cash flow and inventory situation obviously cannot be achieved with peace of mind.
In addition, gaming laptops are actually high-performance notebooks, and the audience is not only the gaming crowd, but also the design industry and other people with high requirements for computer performance. Raytheon Technology repeatedly emphasizes its e-sports attributes in the prospectus, which is nothing more than wanting to use concept marketing to emphasize its scarce attributes, and then obtain higher valuations in the secondary market, and these gimmicks obviously cannot provide long-term support for high valuations.
Raytheon Technology, which enjoyed a high valuation at the moment of listing, followed the subsequent pullback more because of the return of valuation to normal.
Raytheon Technology actually understands its own over-reliance on the shortcomings of foundries, and has recently built a small part of its own production lines from desktops, while using the raised funds to increase the proportion of self-developed projects, but the capital market will not pay for this fledgling future.
*Disclaimer:
The content of this article represents the views of the author only.
The market is risky, and investment needs to be cautious. Under no circumstances does the information in this article or the opinions expressed constitute investment advice to anyone. Before deciding to invest, investors must consult professionals and make prudent decisions if necessary. We do not intend to provide underwriting services or any services that require a specific qualification or license to be performed for the parties to the transaction.