20211021-招银国际-VESYNC-02148.HK-Leveraging_China_production_and_US_e-commerce_42页_4mb

Vesync (2148 HK) Summary

Core Content

Vesync is a leading small appliance company in the US online market, known for its three major brands: Levoit, Cosori, and Etekcity. The company focuses on home environment, cooking, and health monitoring & outdoor appliances. While based in Shenzhen, 90% of its sales come from the US market. In FY20, Vesync reported sales of USD 349 million and a net profit of USD 55 million, with a sales CAGR of 60% and net profit CAGR of 208% from FY17 to FY20.

Main Points

• Product: Vesync's products are highly competitive and innovative, offering value for money. The Levoit brand leads in air purifiers, and the Cosori brand is top-selling in air fryers on Amazon. Customer satisfaction is industry-leading, supported by:

  • Competitive pricing
  • High investment in R&D and A&P (4.8% and 8.5% of sales respectively in FY19)
  • Partnership with Amazon through the Vendor Central Programme

• Channel: Vesync has a strong presence in the US e-commerce market and significant potential for offline expansion. Offline sales are estimated to be 4 times higher than online sales. The company is gradually expanding into offline channels by increasing the number of SKUs and store coverage, with an estimated 5,000 offline stores by Sep 2021.

• Region: The EU market is large and Vesync is well-positioned to capture market share. It already has a strong presence in the UK, and the expansion into the EU is expected to be supported by Amazon's growth in the region.

Financial Forecasts

• Sales CAGR: 30% in FY20-23E
• Net Profit CAGR: 31% in FY20-23E
• GPM (Gross Profit Margin): Expected to decline in FY21E due to cost pressures (higher freight rates, raw material costs, and strong CNY) but rebound in FY22E-23E with product premiumization
• NPM (Net Profit Margin): Also expected to decline in FY21E but recover in FY22E-23E due to cost optimization

Valuation

• Target Price (TP): HK$ 15.60, based on a 25.0x FY22E P/E multiple
• Premium to Peers: 36% over China small appliance peers and 17% over international small appliance peers (average P/E of 18.3x and 21.3x respectively)
• PEG Ratio: Implies a 1.1x 3-year PEG, which is more attractive than the median PEG of 1.0x for China peers and 1.3x for international peers
• Current P/E: 17.8x FY22E, suggesting the stock is undervalued

Key Drivers of Growth

• Robust e-commerce demand: Continued growth in the US online market
• Stay-at-home trends: Increased demand for home appliances during the pandemic
• Wealth effect: Rising consumer spending power
• Offline expansion: Penetration into offline retail channels
• EU market entry: Leveraging Amazon's expansion into the EU

Risks

• Cost pressures: Rising freight, raw material, and CNY appreciation could impact margins
• Competition: Intense competition in the small appliance market
• Market saturation: Potential challenges in expanding into offline and EU markets

Investment Thesis

Vesync is positioned as a strong player in the small appliance market, leveraging its US e-commerce success and expanding into offline and international markets. The company's innovative products, strong brand recognition, and high investment in R&D and A&P support its growth trajectory. With a target price of HK$ 15.60, the stock is considered attractive at its current valuation.

Key Financial Metrics

Shareholding Structure

Management Profile

• Founded by Ms. Yang Lin and Mr. Ryan Xu
• Established core brands (Etekcity, Levoit, Cosori) in 2012, 2016, and 2016 respectively
• Focused on brand marketing, product design, and R&D, with manufacturing outsourced to Chinese suppliers
• Listed on the Hong Kong Stock Exchange in 2020 (Stock Code: 2148 HK)

Strategic Expansion

• Products: Expanding into new categories such as ovens and smart home solutions
• Channels: Expanding into offline retail channels (e.g., Walmart, Target, Best Buy)
• Regions: Expanding into the EU and Asia (e.g., Japan, Southeast Asia)

Key Milestones

Product Highlights

• Levoit: Leading in air purifiers with high customer satisfaction (4.64 rating, ranked 2nd) and innovative features such as:

  • AIRSIGHTplus: High-accuracy laser dust sensor
  • Vortexair: Effective filtration system
  • HEPASmart: True HEPA filter for 99.7% particle removal
  • AirReComposition Formula: Deodorizing without second-hand pollution
  • QuietKEAP: Low noise levels (as low as 24dB)
  • Easy Voice Command: Integration with voice assistants

• Cosori: Leading in air fryers with a customer rating of 4.74 and features such as:

  • Versatility and durability
  • Easy to use and clean
  • Smart control via app

Awards and Certifications

• Levoit:
  • iF Product Design Award
  • Global Innovation Award Winner
  • German Innovation Award
  • Red Dot Design Award 2020
• Cosori:
  • Air Purification You can Trust certification

Conclusion

Vesync is a fast-growing small appliance company with a strong foothold in the US e-commerce market and significant potential for offline and international expansion. Its innovative products, high customer satisfaction, and strategic partnerships position it well for continued growth. The company is currently undervalued, making it an attractive investment opportunity.