Company Profile

Zhejiang Sanfer Electric Co Ltd is engaged in design, production and sales of modern new kitchen appliances with integrated stove. The company's technologies include three-burner fire flames, removable and washable invention patents, and DC inverter motors. The product line covers integrated stoves, integrated sinks, dishwashers, and integrated cabinets. （Source: MarketScreener）

Event

Zhejiang Sanfer Electric Co Ltd （“Sanfer”/ the company） announced its financial results for the year 2022 ended December 31, 2022.

In 2022, the company reported revenue/ net income attributable to shareholders/ net income deducting non-recurring items of CNY 946 million/ CNY 214 million/ CNY 191 million, down 3.10%/ 13.08%/ 15.10% from a year earlier. The gross margin/ net margin attributable to shareholder stood at 46.09%/ 22.65%, down 0.14 percentage points （pps） / 2.58 pps from a year earlier.

In 4Q22, the company turned in revenue/ net income attributable to shareholders/ net income deducting non-recurring items of CNY 237 million/ CNY 62 million/ CNY 55 million, down 18.50%/ 0.26%/ 8.92% from a year earlier. The gross margin/ net margin attributable to shareholder came in at 46.90%/ 26.33%, up 1.65pps and 4.82pps from a year earlier.

Comments

The revenue in Q4 was under short-term pressure, but its products and channels were gathering strength for future growth.

By product categories, the integrated stove/ other kitchen appliances/ cabinets contributed CNY 859 million/ CNY 41 million/ CNY 29 million to revenue, down 4.93%/14.10% / up 189.96% from a year earlier.

Due to the epidemic disruptions, the production, sales and installation of integrated ovens were disrupted, making revenue go down.

The company actively launched new products and expanded its whole-house renovation and cabinet markets, thanks to the low base, the revenue from cabinets grew rapidly.

By channels, the company’s distributors/ e-commerce platforms/ offline direct sales and other channels turned in CNY 874 million/ CNY 42 million/ CNY 30 million to revenue, down 1.97%/ 36.29%/ up 50.61% from a year earlier.

The revenue decline in e-commerce platforms was mainly due to adjustments in online product mix and lifted transaction rate of offline distributors.

The offline direct sales and other channels saw a rapid growth in revenue, mainly thanks to its expanded sales of kitchen supportive appliances including washing machines, integrated sinks and water heaters.

Thanks to the reduction of raw material costs and the optimization of product mix, the efficiency improvement and expense control combined promote its profitability to recover.

With continuous improvements in product mix and less costs, the company’s gross margin in 4Q22 continued to improve.

The selling/ administrative/ R&D/ financial expense rate went up by 4.48pps /0.92pps/ down by 2.97pps /1.62pps to 18.03%/5.02%/2.44%/-4.41%.

The rise in selling expense rate was mainly due to increased marketing efforts and decreased revenue.

Thanks to the improvements in gross margin and stable expense controls, the company’s net margin attributable to shareholders in 4Q22 recovered to positive growth.

Earnings forecast and investment recommendation

With the recovery in prosperity of the industry, Sanfer will accelerate the promotion of multiple products, the rollouts of the entire channels in 2023 to expand its growth potentials, and its operation performance is expected to see gradual improvements.

We revised its EPS at CNY 1.29 in 2023, CNY 1.54 in 2024, and CNY 1.82 in 2025, implying a P/E ratio to 12.9x, 10.8x, and 9.1x, respectively, based on the closing price on April 21, 2023. Reiterate “Outperform”。

Potential risks

slower-than-expected sales recovery in real estate; price hikes pf raw materials; intensified competition