The company’s problem is not just about money, but the major shareholders need to go public and realize it.
The lawn mower is a strange thing to Fengyunjun, who is wandering around the world. Generally, it is only seen in the homes of Europeans and Americans who live in big house in movies.
However, the main producer of lawn mowers in the world is China. Head companies in the lawn mower industry, such as Chuangke Industry (00669.HK) and Quanfeng Holdings (02285.HK) Fengyunjun, have all introduced them and given good comments.
Recently, () (301260.SZ) Growth Enterprise Market held a meeting and will soon land in the capital market.
The company is called "the first share of new energy garden machinery" by many media-the estimated amount of funds raised by the company is as high as 3.456 billion, which is one of the larger IPOs since last year.
Is it really capable, or is it just a hollow reputation?
Fengyunjun reveals the secrets that listed companies don’t want you to know.
On the eve of IPO, it was "two choices" by downstream channel providers, and the expression in the prospectus was contradictory.
Lawn mower, or more broadly outdoor power tool (OPE), is a typical foreign trade manufacturing industry in China: most of the global demand is in North America, and a small part is in Europe.
After a long period of development, the terminal channels are basically monopolized by large local companies.
Take the North American market as an example. Home Depot (HD.N) is the largest distributor of outdoor power tools in North America. Together with Lowe’s (LOW.N) ranked second and Amazon (AMZN.O) ranked third, the top three distributors together account for 73% of the OPE market in North America in 2021.
Although Greebo has a small scale in the North American market, there is no way to face the downstream strength.
(North American market share from July 1, 2019 to June 30, 2020)
In 2021, the revenue from Lloyd’s, the largest customer, decreased by 43%, including Gree Bo’s own brand and OEM brand. The company explained that "due to the deepening cooperation between competitor Quanfeng Holdings and Lloyd’s, the cooperation between the company and Lloyd’s has been adversely adjusted".
In fact, it is "two choices."
Many people may know that Alibaba (09988.HK)’ s "choose one from the other" is actually a common phenomenon in supermarkets in Europe and America, with the aim of avoiding competition among channels and obtaining monopoly profits.
According to the voltage, Greebo’s products are divided into 40V, 60V, 80V and other series. In this "one of two choices", Lloyd’s selected Quanfeng’s 56V EGO brand products, and Gree Bo’s 60V own brand products stopped selling at Lloyd’s.
Kobalt, the 40V Shangchao brand product originally manufactured by Gree Bo, was also produced by Quanfeng Holdings, while 80V branded products continued to be produced by Gree Bo due to the lack of corresponding product lines in Quanfeng, but were only sold online instead.
I don’t know if it is to cover up the embarrassment of being abandoned by customers, but the company then said that the way of cooperation with Lloyd’s "will not have a significant adverse impact on the development of its own brand, nor will it restrict the sales of its own brand or reduce procurement".
Fengyunjun can’t figure out who has a problem with reading comprehension in an instant.
Supposedly, the cooperation with Lloyd’s has gone wrong, so just switch to other channels.
Sorry, it’s not that simple.
Home Depot, the number one distributor, mainly cooperates with Chuangke Industry. Chuangke Industry is the largest manufacturing enterprise in this field, and its Milwaukee and Ryobi are the first professional and DIY tool brands in the world respectively.
In the second half of 2020, Greebo began to cooperate with The Home Depot, and its products were mainly its own brand 60V lawn mower. However, in the second half of 2021, the company stopped its direct business with The Home Depot, and chose to work for other American suppliers of The Home Depot (such as Toro and Echo).
Did The Home Depot choose between Chuangke Industry and Gree Bo? Or did Chuangke Industrial use its dominant position to suppress Gree Bo? Fengyunjun is not clear.
However, there is no doubt that Toro is an American company, and in this process, Gribo was eaten by Toro.
In desperation, Greebo’s living space was gradually squeezed into an e-commerce company like Amazon and a comprehensive supermarket like COST.O, which were the company’s first and second largest customers in the first half of last year.
Although Amazon is large in scale, on the whole, offline channels still dominate the global OPE market, with offline channels accounting for 91% in 2020.
(Prospectus of Quanfeng Holdings)
In the cooperation with Amazon, Greebo also doesn’t have much pricing power. The company said that the current cooperation mode with Amazon is mainly B2B, that is, the products are sold after being bought out by Amazon.
At present, Lloyd’s has fallen to the third largest customer of the company, and the company expects that the income to Lloyd’s will be further reduced in the future.
Toro, the fourth largest customer, is a foundry customer.
Then there are some unknown small fish and shrimp. TSC, the fifth largest customer, and Harbor Freight Tools, the sixth largest customer, are both chain stores of American tools, ranking 36th and 82nd among American retailers respectively in 2021.
The top five customers contributed 63.2% of the revenue.
If you miss the opportunity in the growth track, you will not increase your income.
The outdoor power equipment market is closely related to the real estate industry, which has grown steadily for a long time. In recent years, a major opportunity is the transformation to new energy, and the proportion of lithium-ion tools has increased rapidly.
However, it seems that Greebo did not seize this opportunity.
In 2021, Greebo’s revenue reached 5 billion yuan, and the CAGR of 2018-2021 was 17.2%, far less than the 58.3% of competitor Quanfeng Holdings’ outdoor power equipment. Quanfeng Holdings is the first OPE company to transform into lithium battery, and its scale has surpassed that of Gree Bo.
Chuangke Industry, the industry leader, did not distinguish between power tools and outdoor power equipment. Together, they contributed 76.02 billion revenue in 2021, and the CAGR in 2017-2021 was 22.8%.
(Chuangke Industry has a wealth of power tools products, source: Chuangke Industry Annual Report 2021)
The revenue of () (300879. SZ) with both fuel and lithium-ion mowers in 2021 was 1.61 billion yuan, and CAGR was 21.1% in the last five years.
() (002444.sz) Only in 2021 did we vigorously develop power tools such as vacuum cleaners and power nail guns, and achieved revenue of 1.02 billion yuan in that year.
The main sales areas of the above-mentioned companies are Europe and America, which can be said to be competitors. However, in the case of having a strong enemy before and a pursuer after, Gree Bo was overtaken by the spring peak of the same magnitude, and his performance can only be said to be average.
At present, in the process of transforming outdoor power equipment into lithium battery, none of the upstream manufacturers has real technical barriers. It is most important to seize the time to seize the market and establish a brand.
The gross profit margin of Chuangke Industry, which has a huge scale advantage, has steadily increased year by year, while the gross profit margin of other companies has declined in the "involution" in the past two years. Last year, Greebo’s gross profit margin was 27.5%, down 7.6 percentage points year-on-year, lagging behind Quanfeng Holdings’ outdoor power equipment of 29.8% and ahead of Daye and Giant Star Technology.
For Gree Bo, the main reason for the decline in profitability is the sharp drop in the gross profit margin of supermarkets, and the premium of small supermarkets is really not good.
At present, the company’s e-commerce channel has the highest gross profit margin, and the OEM gross profit margin is low but stable.
In 2021, the company’s non-net profit margin was only 4.7%, and the non-net profit margin was 240 million, down 42% year-on-year.
The company expects revenue of 4.15-4.25 billion yuan in the first three quarters of last year, up by 11.42%-14.11% year-on-year, and net profit of 200-210 million yuan, down by 11.49%-7.07% year-on-year.
The obvious increase in income does not increase profits.
Under the trade stick of the United States, China’s manufacturing industry should be self-reliant
Although there are so many negatives, Fengyunjun believes that the company itself cannot be simply blamed for the problem.
Problems such as "involution" and "alternative" are actually the comprehensive embodiment of demand-side pressure and American trade protectionism.
At present, it seems that the global economic slowdown is inevitable; Moreover, in order to deal with the tariff problem, companies need to pay extra costs.
Griebo said that in response to the tariff increase in the United States, the company chose to negotiate with customers to share tariffs and set up a manufacturing center in Vietnam.
In 2020, the company’s sales to STIHL, the fifth largest customer, declined, also because STIHL transferred some products to American factories for production, reducing the purchasing scale of ODM.
Coincidentally, Chuangke Industry, the first in the industry, also chose to build a new production facility for cordless lawn mowers in the United States.
(Source: Chuangke Industrial 2021 Financial Briefing)
Quanfeng Holdings, the second largest company in the industry, set up Quanfeng Vietnam in 2020 to produce locally to avoid some tariffs.
In addition, Chuangke Industrial and Quanfeng Holdings both expand their brands through acquisitions and form a brand matrix to balance the influence of downstream channels.
For example, the Milwaukee brand under Chuangke Industrial can be traced back to 1924 and was acquired by Chuangke Industrial in 2005.
In addition to its own brand EGO, Quanfeng Holdings also acquired German brand FLEX and American brand SKIL, and there are currently five different brands. FLEX brand was founded in 1922 and acquired by Quanfeng in 2013.
(Source: Quanfeng Holdings Prospectus)
In 2017, Greebo acquired a 70% stake in Cramer, a European garden machinery company, for 5.6 million euros, but it was sold for 1 million euros in 2020 because the operation and synergy failed to meet expectations.
At present, the company insists on selling with its own brand greenworks, and the proportion of its own brand is rising, reaching 65.5% in the first half of last year.
In addition, the company’s sales on the official website platform are also increasing year by year, accounting for 4.70% in the first half of last year.
Cash flow deteriorates, and major shareholders need to go public to realize it.
Founded in 2002, Greebo introduced external investor STIHL in 2016 and changed into a joint-stock company in 2020.
STIHL is a German garden machinery manufacturer and a customer of the company.
At present, the actual controller of the company is Chen Yin, co-founder and chairman, who holds 75.1% of the shares and STIHL holds 24.9% of the shares through direct and indirect means. It is rare that there are no external institutional investors.
Among the four executive directors, except Chen Yin, all are from financial background.
In this IPO, the company plans to raise 3.456 billion yuan, and the public offering shares account for 25% of the total issued share capital. If it is successfully raised, the market value will be 13.82 billion yuan, which is already small.
The company’s main problem now is cash flow. In 2021, the net cash flow from operating activities and free cash flow were 60.97 million yuan and 400 million yuan respectively, and in the first half of last year, they were 290 million yuan and 450 million yuan respectively.
The main reason for the deterioration of cash flow is the substantial increase in inventory and recurring accounts receivable, which reflects that the company’s large stock in 2021 has not been digested.
However, Greebo said with a swollen face that 90% of the production is driven by orders, which is very incomprehensible.
The company’s solvency has also deteriorated. By the end of the first half of the year, short-term loans were 1.10 billion yuan, long-term loans were 730 million yuan, and monetary funds were only 720 million yuan, which was not enough to cover short-term liabilities.
As can be seen from the company’s shareholding structure, Chen Yin does not want to share the IPO dividend with external investors. In the absence of new funds, listing may be the best choice.
In 2020, the company paid a dividend of 160 million yuan, accounting for 29% of the net profit returned to the mother in that year.
As a foreign trade-oriented manufacturing company, Greebo’s performance is inevitably subject to the downstream channels and the economic environment in North America.
In recent years, in the process of lithium electrification of garden machinery, the company’s development is not satisfactory, and its scale has been overtaken by Quanfeng Holdings, and its profitability has also fallen sharply.
Perhaps knowing that the company’s problems are not ultimately solved by money, Chen Yin, the boss of the company, chose to go public as soon as possible instead of introducing investors.
Faced with the risk of global economic recession this year, the company’s future is still unknown.
