Shenzhen Business Daily · Reading Client reporter Li Gengguang
Less than half a year after the seven-year collapse of the A-share IPO, Heung Kong Electric turned to Hong Kong stocks again.
In May this year, Hubei Xiangjiang Electric Co., Ltd. (hereinafter referred to as "Xiangjiang Electric") voluntarily withdrew its listing application on the main board of the Shenzhen Stock Exchange. Four months later, Heung Kong Electric submitted a prospectus to the Hong Kong Stock Exchange on 29 September 2024, planning to list on the main board.
On October 10, Heung Kong Electric announced on the Hong Kong Stock Exchange that it had further appointed CCB International Capital Corporation Limited as its overall coordinator. Previously, the company had appointed Sinolink Securities (Hong Kong) Limited as its overall coordinator.
In fact, the listing process of Heung Kong Electric can be described as twists and turns.
In May 2017, Heung Kong Electric was listed on Dongguan Securities, but due to internal control problems, the counseling was not able to submit the form for 3 years. In January 2021, Heung Kong Electric's listing counseling agency was changed to Industrial Securities, but the counseling was terminated after only two months. In August 2021, Heung Kong joined hands with Guojin Securities to appoint it as the company's counseling agency, and helped it submit its form to the Shenzhen Stock Exchange in June 2022, which was accepted by the Shenzhen Stock Exchange in March 2023. However, after two rounds of inquiries and replies to inquiries, in May 2024, Heung Kong Electric chose to withdraw its listing application, and its A-share listing plan failed.
This A-share IPO road, Heung Kong Electric has gone through 7 years.
Although it has moved to the Hong Kong Stock Exchange this time, Heung Kong Electric is still facing a decline in revenue scale and net profit, with more than 95% of its revenue coming from OEM and more than 60% of its revenue relying on a few large customers. Whether Heung Kong Electric can finally successfully land on the Hong Kong stock market is still uncertain.
▎Revenue growth "stagnated", and net profit and gross profit margin declined significantly in the first half of this year
According to public information, Hubei Xiangjiang Electric Appliance Co., Ltd. was established in 2012, the company focuses on the research and development, design, production and sales of electrical household products and non-electrical household products, and its business model includes ODM/OEM business and "Weighmax", "Accuteck" and "Aigoli" independent brand business, ODM/OEM business is the company's main source of income.
HeungKong's customer base includes Walmart, Telebrands, SEB, Sensio, HamiltonBeach and Philips. According to the Frost & Sullivan report, in terms of export value in 2023, Heung Kong Electric is among the top ten enterprises in China's small kitchen appliance industry.
In terms of finance, from 2021 to the first half of 2024 (hereinafter referred to as the reporting period), Heung Kong Electric's revenue was 1.48 billion yuan, 1.097 billion yuan, 1.19 billion yuan, and 610 million yuan respectively; The net profit was 71.8 million yuan, 80.26 million yuan, 121 million yuan and 60.54 million yuan respectively. Among them, the majority of the company's revenue comes from sales in North America and Europe, accounting for 91.9%, 92%, 93% and 92.4% of revenue, respectively.
Comparing the data, it can be seen that Xiangjiang Electric's operating income in 2022 will decline by 25.82% year-on-year, and will only increase slightly by 8.5% in 2023, while the revenue scale in the first half of 2024 will be basically the same as half of the previous two years, indicating that the company's revenue growth has slowed down significantly, and even fallen into "stagnation". In addition, the company's net profit fell by 12.43% year-on-year in the first half of 2024 after two consecutive years of growth.
At the same time, Heung Kong Electric's gross profit in the first half of 2024 is also decreasing, from 142 million yuan in 2023 to 137 million yuan. The gross profit margin decreased to 22.36% in the first half of 2024, compared to 25.5% in the first half of 2023 and 24.1% for the full year of 2023. Among them, in the first half of 2024, the gross profit margin of the company's electrical household products and non-electrical household products both declined.
▎Revenue mainly relies on OEM business and large customers, and the proportion of private label revenue continues to shrink
It is worth mentioning that the revenue scale of more than one billion yuan of Heung Kong Electric basically depends on the support of the OEM business.
According to the prospectus, the business model of Heung Kong Electric includes ODM/OEM business and independent brand business, with ODM/OEM business as the main source of income, accounting for more than 90% of the main business income.
Specifically, during the reporting period, the company's ODM/OEM model revenue was 1.386 billion yuan, 1.036 billion yuan, 1.139 billion yuan and 591 million yuan respectively, accounting for 93.7%, 94.4%, 95.8% and 96.3% respectively.
It is worth noting that the OEM orders of Xiangjiang Electric are concentrated in the hands of a few large customers.
According to the prospectus, during the reporting period, Heung Kong Electric's revenue from the top five customers accounted for 62.4%, 62.4%, 72.4% and 74.9% respectively, and the proportion from the largest customers during the period was 27.1%, 21.3%, 28.5% and 25.0% respectively. One of its major customers, Telebrands, accounted for 22.0%, 16.5%, 18.7% and 22.0% of the total revenue during the reporting period, respectively.
More than 60% of Heung Kong Electric's revenue comes from a few large customers, which means that once there are customers with problems such as order reduction or even order cuts, Heung Kong Electric will inevitably bear follow-up risks.
Heung Kong Electric mentioned in the prospectus that since most of the company's revenue comes from a small number of customers, if these major customers cease to do business with the company or significantly reduce orders from the company, the company will be exposed to the risk of significant losses, which may lead to significant fluctuations or declines in the company's revenue, and have a material adverse impact on the company's business, financial condition and results of operations.
In addition to relying mainly on the OEM business, Heung Kong Electric launched the OBM business in 2016 to design, develop, produce and sell household appliances under its own brands "Accuteck" and "Agri". The Company mainly sells OBM products on e-commerce platforms, including Amazon, JD.com, Tmall and Pinduoduo.
Generally speaking, the OBM model can generate a higher profit margin than the ODM/OEM model, but the revenue of Heung Kong Electric's OBM business has continued to decline, from 93.949 million yuan in 2021 to 49.706 million yuan in 2023, and significantly reduced to 22.96 million yuan in the first half of 2024, accounting for 3.7% of revenue in the first half of 2024.
This also means that Heung Kong Electric's OBM business, which is dominated by its own brands, may still face operational challenges such as insufficient brand competitiveness, insufficient product category richness, and low market acceptance.
In addition, it is worth mentioning that from 2021 to the first half of 2024, the outstanding amounts of social security and housing provident fund of Heung Kong Electric are 2.3 million yuan, 1.7 million yuan, 2.2 million yuan and 1.3 million yuan respectively. In this case, the company also faces the risk of being required to pay back or be fined.
In this Hong Kong IPO, Heung Kong Electric intends to raise funds to set up a factory in Thailand to enhance its global layout, automation and digital upgrading, set up a new R&D center with a total construction area of about 6,000 square meters in Qichun, Hubei Province, introduce new brands and replenish working capital.
In the previous A-share listing application, Heung Kong Electric planned to raise 576 million yuan for the construction project of quality life household products, the construction project of the R&D center and the replenishment of working capital.