ZHEJIANG NATURAL OUTDOOR GOODS(605080)：STRONG GROWTH CAPABILITIES;HIGH PROFITABILITY THANKS TO INTEGRATED VALUE-CHAIN PRESENCE

　　2021 and 1Q22 results in line with our forecasts
Zhejiang Natural Outdoor Goods Inc (ZNOG) announced its 2021 and 1Q22 results. In 2021, revenue rose 44.9% YoY to Rmb842mn; net profit grew 37.6% YoY to Rmb220mn; recurring earnings rose 44.9% YoY to Rmb199mn. In 1Q22, revenue rose 46.6% YoY to Rmb330mn; net profit grew 37.8% YoY to Rmb85mn. The 2021 and 1Q22 results were in line with our forecasts.
　　Trends to watch
　　Sustained strong revenue growth. ZNOG maintained strong revenue growth of 45% in 2021 and 47% in 1Q22 YoY, thanks to a buoyant outdoor sporting goods industry, the firm’s new customer acquisition, and development of new products. Inflatable mattresses: Revenue rose 47.1% YoY to Rmb636mn, while sales volume grew 11% YoY to around 4.23mn units in 2021. We attribute the revenue growth to higher ASPs amid a rising proportion of thermoplastic polyurethanes (TPU)-made products. Bags and luggage: Revenue rose 59.6% YoY to Rmb111mn, while sales volume grew 55.9% YoY to around 1.98mn units in 2021. We think the bags and luggage business will maintain strong growth in 2022 as its new factory in Vietnam comes online. Headrests and seat cushions: Revenue rose 37.42% YoY to Rmb56mn; sales volume grew 40.1% YoY to around 1.95mn units in 2021.
　　Profitability remained strong. Gross margin fell 1.9ppt YoY to 38.76% in 2021 and slid 4.7ppt YoY to 36.47% in 1Q22, due to adjustments in accounting principles, the impact from foreign exchange rates, and rising raw material prices. The overall expense ratio dropped 4.0ppt to 10.0% in 2021 and fell 4.7ppt YoY to 6.6% in 1Q22. In 2021, selling, financial and R&D expense ratios fell 1.4ppt, 1.1ppt, and 0.1ppt YoY to 1.4%, 0.01%, and 3.5%, respectively, whereas the G&A expense ratio expanded 0.5ppt YoY to 5.1%. As such, the net margin dropped 1.4ppt and 1.6ppt YoY to 26.1% and 25.7% in 2021 and 1Q22. Nevertheless, we still view the net margin as being at high levels in 2021 and 1Q22.
　　Upbeat on high revenue growth driven by expansion in product categories; integrated presence in value chain leads to high profitability. New product categories: ZNOG continues developing new product categories by leveraging its strong design, R&D, and manufacturing capabilities. ZONG’s revenue from new product categories has increased rapidly, serving as the firm’s new growth driver. Integrated presence along the value chain: ZNOG possesses five key technologies covering thermoplastic polyurethane (TPU) fabrics, fabric coating, and other areas. The firm covers all the key processes regarding TPU-made products, including composite fabric production, product design, and manufacturing. Full coverage of the value chain helps strengthen the firm’s cost advantage, allowing it to obtain earnings from the whole value chain and supporting above-peer profitability. In addition, ZNOG enjoys advantages in product quality and delivery, thanks to its self-owned production capacity. We believe these factors strengthen customer stickiness.
　　Financials and valuation
　　We leave our 2022 and 2023 earnings forecasts unchanged. The stock is trading at 23x 2022e and 18x 2023e P/E. We maintain an OUTPERFORM rating and our target price at Rmb77.00, implying 28x 2022e and 22x 2023e P/E and offering 22% upside.
　　Risks
　　Demand weakens due to pandemic resurgence; volatile raw material prices; intensifying market competition.
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   【免责声明】本文仅代表第三方观点，不代表和讯网立场。投资者据此操作，风险请自担。