GUANGDONG XINBAO ELECTRICAL APPLIANCES HOLDINGS(002705)：BUY TRADEMARK OWNERSHIP OF MORPHY RICHARDS UPGRADE SELF-OWNED BRAND STRATEGY

机构：兴业证券
研究员：YAN Xiaoqing

Company Profile Guangdong Xinbao Electrical Appliances Holdings Co., Ltd. is a China-based company principally engaged in the design, research, development, manufacture and sales of small household electrical appliances. The Company's main products include electric heating kitchen appliances, electric kitchen appliances and household appliances, such as coffee makers and vacuum cleaners. The Company distributes its products in domestic market and to overseas markets.（Source: MarketScreener）
Event
Guangdong Xinbao Electrical Appliances Holdings Co., Ltd. （“Xinbao”/ the company） inked a memorandum with MORPHY RICHARDS LIMITED （MR）。
It plans to acquire assets of MR, which means to buy the trademark ownership of Morphy Richards operated in China, the UK, Ireland, New Zealand and Australia, and to carry out business collaboration with MR in the form of brand authorizing and distribution in Ireland, New Zealand and Australia.
Comments
This move is expected to efficiently facilitate Xinbao to develop and expand new product categories, further improving its business performance and scale, and promoting its overall growth in revenue and profits.
Thanks to the rise in sales volume of new products and rising demand, Morphy Richard will see an acceleration in performance growth in Q2 and Barsetto has delivered outstanding performance during the shopping carnival called “618”。
Due to the COVID-19 catalyst, the rise of outdoors consumption, and a rise in sales volume of new products including sports bottles and purifiers for fruits and vegetables as well as the low base in Q221, Morphy Richard recovered high growth in April and May and is expected to continue the acceleration in Q222.
As the sales of Morphy Richard in the first round of promotion on Tmall platform during the shopping carnival called “618” jumped by 66% from a year earlier, and Q3 is to see new product launch of rice cookers and air fryers, the company’s revenue will continue to grow.
In addition, “Barsetto”， the company’s coffer maker brand grows rapidly. According to statistics, Barsetto S 2.0 has snatched the first spot in sales in coffee makers on Tmall platform and taken the top two spots in the ranking of coffee maker trading on JD platform so far, which is expected to facilitate the company to expand business in household coffee makers.
The revenue from exports in Q2 has been steady and robust, and price hikes of orders and RMB depreciation are expected to boost the company’s profits.
In Q2, the company’s revenue from overseas markets has grown steadily and its profits have continued to recover, mainly due to the low base in Q221.
The price hikes of overseas orders and RMB depreciation are expected to boost the company’s profitability in its exports business in Q222.
Earnings forecast and investment recommendation Based on its excellent capabilities in R&D and design as well as its flexible production capabilities, Xinbao continues to expand its overseas markets, and the price hikes of orders help maintain its steady revenue from its exports business.
Morphy Richards has continued to improve its performance in China, and the continued innovation of product category combined with differentiated brand matrix help the company pitch into long-trail small home appliance market in China. The direct sales on its official flagship store are expected to improve its domestic profits.
We have revised our EPS forecasts to CNY 1.24 in 2022, CNY 1.59 in 2023, and CNY 1.90 in 2024, implying a P/E ratio to 15.1x, 11.8x, and 9.8x, respectively, based on the closing price on June 8th. Reiterate “Outperform”。
Potential risks continuous price hikes of raw materials; less-than-expected terminal demands; intensified competition