New Stock Outlook | With an annual revenue of 1.5 billion mainly relying on the export of small household appliances, where is the future growth potential of Hong Kong Electric Appliances?

After years of unsuccessful attempts to list on the A-share market, Xiangjiang Electric finally turned its focus to "Xiangjiang." Recently, Hubei Xiangjiang Electric Appliance Co., Ltd. (hereinafter referred to as "Xiangjiang Electric") once again submitted documents to the Hong Kong Stock Exchange. This company, primarily engaged in exporting kitchen appliances, had engaged advisory organizations to assist in obtaining an A-share listing as early as 2017. However, after years of setbacks, Xiangjiang Electric was unable to make further progress. Subsequently, Xiangjiang Electric submitted documents to the main board of the Hong Kong Stock Exchange in September of last year, and after the IPO prospectus failed, they swiftly resubmitted this month. As a manufacturer of household appliances, Xiangjiang Electric mainly operates on the ODM/OEM model and has established a customer base consisting of globally renowned brands such as Walmart and Philips. According to a report by Frost & Sullivan, based on export figures for 2023, Xiangjiang Electric is the tenth largest company in the Chinese kitchen appliance industry, with a market share of approximately 0.6%. Additionally, based on export volumes to the U.S. and Canada in 2023, Xiangjiang Electric's electric kettles held market shares of around 21.4% and 32.3% respectively in the relevant categories defined by the Chinese General Administration of Customs. Products such as egg beaters accounted for approximately 6.7% of the market share in exports to the U.S. in 2023. Over the past few years, Xiangjiang Electric's core financial data has continued to show an upward trend. However, with recent challenges to the international trade order and looming tariff uncertainties, the majority of Xiangjiang Electric's revenue coming from exports may face uncertainties in the future. What's behind the double-digit growth? Breaking down the business structure, Xiangjiang Electric's operations include the research, design, production, and sale of electrical and non-electrical household appliances. Electrical household appliances mainly consist of electric heating appliances, electric appliances, and electronic appliances, while non-electrical household appliances include garden hoses and cookware. From 2022 to 2024, Xiangjiang Electric's revenue continued to grow, reaching 1.097 billion yuan, 1.188 billion yuan, and 1.502 billion yuan respectively, with a revenue growth of 26.4% in 2024. Electric household appliances remained the company's main source of income. During the reporting period, this business type accounted for 82%, 78.5%, and 79.2% of the revenue, staying at a high level. In 2024, electric heating appliances and electric appliances accounted for 50.5% and 21% respectively. Non-electrical household appliances accounted for 18%, 21.5%, and 20.8% of the revenue during the same period. Among these, garden hoses were the main source, accounting for 16.5%, 18.7%, and 19%. Most of Xiangjiang Electric's products are manufactured in China, with the majority of revenue coming from product sales destined for the United States. From 2022 to 2024, the sales revenue to the U.S. accounted for 68.8%, 80.6%, and 76.5% of the total revenue. Additionally, Xiangjiang Electric also had revenue from Canada in North America, as well as Europe, Oceania, South America, Africa, and other regions in Asia excluding mainland China. Revenue from product sales destined for mainland China accounted for less than 1% during this period. Thanks to the significant growth in electric heating appliances and garden hoses in 2024, Xiangjiang Electric achieved double-digit revenue growth. At the same time, the company's profit indicators also saw structural optimization. Data shows that from 2022 to 2024, Xiangjiang Electric's gross profit was 224 million yuan, 286 million yuan, and 329 million yuan, with gross profit margins of 20.4%, 24.1%, and 21.9% respectively, and net profits of 80.26 million yuan, 121 million yuan, and 140 million yuan. The net profit in 2024 also saw a growth of 15.6%. Enhancing global competitiveness through overseas factories? From a macro perspective, China's small home appliance industry has become a leading global production base over the past few decades. However, as external uncertainties rise, some international brands are seeking to expand their supply chains to reduce the impact of single markets. It may be out of consideration for meeting customer demands that Xiangjiang Electric is planning to establish overseas factories to enhance its global competitiveness further. It is reported that Xiangjiang Electric is currently planning to establish a production base in Thailand. According to the prospectus, the new production facility will cover an area of approximately 25,000 square meters, focusing on setting up new automated assembly lines for electric appliances and garden hoses. Xiangjiang Electric estimates that the new production workshop will commence operation in the second half of this year and is expected to undergo acceptance testing in September next year. Furthermore, it is worth mentioning that Xiangjiang Electric also has production facilities in Indonesia. As one of the measures to reduce external risks, the company currently holds regulatory approvals and certificates required for production in Indonesia. Xiangjiang Electric expects this factory to commence operation in the second quarter of this year, mainly manufacturing electric heating appliances like air fryers. From the ambitious expansion plans, it is evident that Xiangjiang Electric has long anticipated and implemented a series of measures to deal with the complexity and uncertainty of the external environment. Nevertheless, considering the unpredictable nature of U.S. tariff policies, including Thailand being subject to U.S. tariffs, it is difficult to analyze the potential impact quantitatively. Xiangjiang Electric's growth prospects may still face significant uncertainties. Therefore, despite Xiangjiang Electric's good performance from 2022 to 2024, capturing investors' interest based on fundamentals in a market that values growth prospects and certainty may not be an easy task. As for Xiangjiang Electric's potential success in listing on the Hong Kong Stock Exchange after being rejected by the A-share market, GMTEight will continue to monitor the situation.