In recent years, as the "small appliances + OEM" model has become increasingly competitive, even the top few listed companies in China have found it difficult to present perfect financial reports. However, there are still players in this industry attempting to make an impact on the capital market, one of which is Xiangjiang Electrical Appliance Co., Ltd. (hereinafter referred to as "Xiangjiang Electric").
After withdrawing its application for listing on the A-share market in May 2024, Xiangjiang Electric submitted a listing prospectus to the Hong Kong Stock Exchange on September 30, just four months later. This time, will it be able to successfully enter the capital market?
1. Shifting from A-shares to H-shares, with fluctuating performance
The prospectus discloses that Xiangjiang Electric was established in 2012, founded by Pan Yun. However, the company's predecessor, "Shenzhen Xiangjiang Plastic Products Co., Ltd.," was established as early as 1990. At that time, Pan Yun was optimistic about the development prospects of the home products industry and entered the industry by operating packaging and plastic products such as bubble bags, makeup boxes, and mirrors, providing OEM (original equipment manufacturing) services to customers.
After 1995, Pan Yun led the company into the electrical home appliance market, producing and developing products such as deep fryers, electric steamers, electric ovens, and electronic scales.
Starting from 2002, Pan Yun successively established standardized production bases such as Aisiji, Yuantexin, and Yinuowei in places like Shenzhen and Jiangyin, Jiangsu. By 2012, when Xiangjiang Electric was officially established, the company had six production bases by 2020.
As early as 2017, Xiangjiang Electric began preparing for listing, during which it appointed three advisory agencies for listing guidance.
On June 21, 2022, the company submitted an application for listing on the A-share market to the China Securities Regulatory Commission. In March 2023, its application was transferred to the Shenzhen Stock Exchange, planning to list on the main board of the Shenzhen Stock Exchange, and received two rounds of inquiries from the Shenzhen Stock Exchange in March and September 2023.However, Xiangjiang Electrical Appliances withdrew its application for listing in May 2024, citing the need to further enhance its international reputation. The company's directors believe that listing on the Hong Kong stock market is also suitable and aligns with the company's focus on overseas market development.
The prospectus shows that Xiangjiang Electrical Appliances currently mainly researches, designs, manufactures, and sells three major categories of products: electric heating appliances (such as electric ovens, air fryers, electric kettles), electric appliances (such as mixers, egg beaters, etc.), and electronic appliances (such as electronic scales, humidifiers, laser lights, etc.).
In 2016, the company also established an OBM (own brand) business focusing on its own brands such as "Weighmax Wei Maisi," "Accuteck," and "Aigoli Aigeli."
It has been observed that in recent years, the performance of Xiangjiang Electrical Appliances has been fluctuating.
The prospectus shows that in 2021, 2022, 2023, and the first half of 2024, the company's revenue was 1.4804 billion yuan, 1.097 billion yuan, 1.1883 billion yuan, and 614.4 million yuan, respectively. During the same period, the company's net profit was 71.8 million yuan, 80.3 million yuan, 121.5 million yuan, and 60.5 million yuan.
It can be seen that in 2022, the company experienced a situation where profits increased but revenue did not; while in the first half of 2024, there was an increase in revenue but not in profits. In 2021, revenue reached a high point, but in the following two years, there was a stagnation in growth.
From 2021 to the first half of 2024, Xiangjiang Electrical Appliances' annual profits were 71.802 million yuan, 80.261 million yuan, 121.5 million yuan, and 60.54 million yuan, respectively, with a year-on-year decrease of 12.4% in the first half of 2024.
From 2021 to 2023, Xiangjiang Electrical Appliances' gross profit margins were 11.3%, 16.6%, and 20.9%, respectively, showing an increasing trend. However, compared with peer companies such as Joyoung and Bear Electric Appliances, there is still a gap.
Joyoung's gross profit margins from 2021 to 2023 were 27.79%, 29.09%, and 25.86%, respectively, never falling below 25% in the past three years. Meanwhile, Bear Electric Appliances' gross profit margins during the same period were 32.78%, 36.45%, and 36.61%, respectively, never falling below 30%.
Clearly, Xiangjiang Electrical Appliances' profitability still needs to be further improved.2 Revenue heavily relies on the top 5 customers, with the share of OBM shrinking
As a small appliance manufacturer with a strong "foreign trade" color, Xiangjiang Electric's business also shows a significant overseas dependency characteristic.
The prospectus shows that from 2022 to the first half of 2024, most of Xiangjiang Electric's revenue came from sales in North America and Europe, accounting for 91.9%, 92%, 93%, and 92.4% respectively.
During the same period, Xiangjiang Electric's sales to the top 5 customers accounted for 62.4%, 62.4%, 72.4%, and 74.9% of the company's total revenue, showing an overall increasing trend.
From 2021 to the first half of 2024, the company's largest customer, Telebrands, contributed to the performance ratio of 27.1%, 21.3%, 28.5%, and 25% respectively.
In 2023, Xiangjiang Electric's top five customers were Walmart, Telebrands, Sensio Inc., Hamilton Beach, and RJ Brands, LLC. These companies are mainly large brand merchants, retailers, importers, etc. in overseas markets such as Europe and North America.
Xiangjiang Electric also stated in the response document to the inquiry before the A-share listing: "The cooperation term with the top five customers has basically exceeded ten years, which is an important factor for the stability of the company's operating performance."
If there is a change in the order demand of Xiangjiang Electric's main customers, or the breakdown of their cooperative relationship, or these customers are adversely affected by the global or regional economic situation and default, it will bring uncertainty to Xiangjiang Electric's production and operation.
Among them, the revenue share of the company's largest customer, Telebrands, once decreased from 27.14% in 2021 to 24.55% in the first half of 2022, and from 23.59% to 13.45% from 2020 to the first half of 2022 from the second-largest customer, Walmart, both of which triggered inquiries from the listing supervision department.
Xiangjiang Electric's explanation at the time was that the product category sold to Telebrands changed, leading to a change in revenue share. The decline in Walmart's contribution to revenue share was due to a significant decline in the sales volume of air fryers and electric kettles, which affected the revenue share.In the recently disclosed risk factors of the prospectus, Xiangjiang Electric also acknowledged that their customers have not made long-term purchase commitments to the company. Currently, the OEM/ODM contract manufacturing business is the most important revenue pillar for Xiangjiang Electric. The prospectus shows that from 2021 to the first half of 2024, Xiangjiang Electric's revenue from the OEM/ODM contract manufacturing model was 13.864 billion yuan, 10.356 billion yuan, 11.386 billion yuan, and 5.915 billion yuan, accounting for 93.7%, 94.4%, 95.8%, and 96.3% of total revenue, respectively. During the same period, Xiangjiang Electric's revenue from OBM business was 939 million yuan, 614 million yuan, 497 million yuan, and 230 million yuan, accounting for only 6.3%, 5.6%, 4.2%, and 3.7%, respectively. It is worth noting that in recent years, the revenue proportion of Xiangjiang Electric's OBM business has not increased, but has shown a further downward trend. This also means that the OBM business, which is mainly based on its own brand, may still face operational challenges such as insufficient brand competitiveness, lack of product category richness, and low market acceptance. In the reply to the review inquiry letter for the A-share listing, Xiangjiang Electric had disclosed their gross profit margins for OEM/ODM and OBM compared with peer companies. Looking at the data at that time, from 2020 to the first half of 2023, Xiangjiang Electric's OBM business gross profit margins were 37.22%, 25.82%, 34.68%, and 43.24%, far higher than the 20.68%, 18.48%, 21.71%, and 27.24% of the ODM/OEM business during the same period. If the company wants to improve its profitability, it should increase its support for the OBM business. Compared with comparable companies in the same industry, Xiangjiang Electric's OBM business gross profit margins from 2020 to 2022 were also below the industry average. The industry's average gross profit margin has never been below 40% in these 3 years, while Xiangjiang Electric's OBM business gross profit margin has never exceeded 38%. It can be seen that Xiangjiang Electric still has greater development potential and room for improvement in the OBM business.3 Xiangjiang Electric Appliance Delayed Listing, Pan Yun Repurchased Shares Due to a Bet Agreement
In reality, Xiangjiang Electric Appliance is a family business, with the controlling rights of the company concentrated in the hands of the actual controller, Pan Yun.
The latest prospectus shows that, as of the last practicable date, Pan Yun and his son, Guangshe Pan, control 100% of the equity of Xiangjiang Electric Appliance.
Such a highly concentrated equity company has certain potential risks. The health condition, strategic vision, and personal character of the actual controller may all affect the growth trajectory of the enterprise.
If the enterprise lacks necessary external supervision and constraints, or if decision-making power is overly concentrated in one person's hands, the operational efficiency of the enterprise will also be affected.
Earlier, Xiangjiang Electric Appliance had also introduced external investors and signed a bet agreement with the investors.
According to the prospectus, in December 2017, the company and Pan Yun signed a capital increase agreement and a supplementary capital increase agreement with HuiYin HeFu and HuiYin RuiHe, agreeing that if Xiangjiang Electric Appliance failed to complete the A-share listing before December 31, 2020, Xiangjiang Electric Appliance would need to repay the investment funds to the two investors by reducing the registered capital, plus a 6% single interest annual pre-tax return.
In August 2018, the company and Pan Yun signed a capital increase agreement with HuiYin JiaFu, and agreed that if the company failed to complete the A-share listing before December 31, 2020, Pan Yun would acquire the shares held by HuiYin JiaFu, plus a 6% single interest annual pre-tax return.
Ultimately, due to the expected delay in Xiangjiang Electric Appliance's A-share listing, on March 6, 2019, Pan Yun repurchased the shares of HuiYin JiaFu, in addition to the original investment cost of HuiYin JiaFu of 29.7 million yuan, and an additional investment return of 1.127 million yuan under the supplementary agreement.
In December 2019, due to the expected delay in Xiangjiang Electric Appliance's A-share listing, the two investors, HuiYin HeFu and HuiYin RuiHe, chose to withdraw funds in advance, and the company repurchased and canceled the shares of the two investment institutions.In addition to returning the original investment funds to the counterparty, Xiangjiang Electrical Appliances also paid two investment institutions an investment return of 3.964 million yuan and 1.101 million yuan according to the supplementary investment agreement.
Although Xiangjiang Electrical Appliances did not have a bet agreement when going public this time, there are still some compliance issues that may need to be resolved. For example, from 2021 to the first half of 2024, the company's social security and housing provident fund arrears were 2.3 million yuan, 1.7 million yuan, 2.2 million yuan, and 1.3 million yuan, respectively. In this situation, the company faces the risk of being required to make up the arrears or being fined.
In summary, although Xiangjiang Shares' revenue in the first half of 2024 increased year-on-year, its profitability still has a lot of room for improvement. Moreover, more than 90% of the company's revenue relies on OEM, the proportion of OBM business continues to shrink, customer concentration is too high, and the business is to some extent constrained by downstream customers. These are all business challenges that Pan Yun and his son need to face directly.
In the future, whether Xiangjiang Electrical Appliances can pass the Hong Kong Stock Exchange hearing smoothly and go public successfully will also be continuously followed.