The IPO is approved, and another big seller will be successfully listed!

After being suspended three times and resumed three times, Zhiou Home Furnishing Technology Co., Ltd. (hereinafter referred to as "Zhiou Technology") finally saw the light at the end of the tunnel. On April 26, Zhiou Technology's GEM IPO was approved for registration, which means that the "first stock" of Henan Internet home furnishing is one step closer to listing.

It is understood that Zhiou Technology was founded in Zhengzhou, Henan in 2010. It is a company focusing on the research and development, design and sales of its own-brand home furnishing products. It has been deeply engaged in the vertical category for more than ten years and has now become a leading seller in the home furnishing category with annual revenue exceeding 5 billion. Its three major own-brand brands have successfully become among the most popular home furnishing brands among consumers in the European and American markets, and many of its products have been ranked at the top of the best-selling lists of third-party e-commerce platforms such as Amazon for many years.

With an annual net profit of 250 million, Zhiou Technology is about to go public

On April 26, the China Securities Regulatory Commission approved the registration application for the initial public offering of shares by Zhiou Technology. Henan is expected to welcome its first Internet home furnishing listed company.

The prospectus disclosed previously showed that Zhiou Technology is seeking to be listed on the Growth Enterprise Market. Zhiou Technology plans to issue no more than 40.15 million new shares and raise 1.486 billion yuan. After deducting the issuance costs, the funds will be used to invest in R&D and design center construction projects, warehousing and logistics system expansion projects, Zhengzhou headquarters operation and management center construction projects, and to supplement working capital.

It is understood that Zhiou Technology's products mainly include furniture, home furnishings, garden, pet series and other products. It has three self-owned brands, SONGMICS, VASAGLE and FEANDREA, which focus on home furnishings, furniture and pet categories respectively. The products are mainly sold through overseas online B2C platforms such as Amazon, Cdiscount, ManoMano and eBay.

From 2020 to 2022, Zhiou Technology's revenue was 3.971 billion yuan, 5.967 billion yuan and 5.456 billion yuan respectively, and its net profit attributable to the parent company was 380 million yuan, 240 million yuan and 250 million yuan respectively. Overall, compared with previous profits, Zhiou's net profit in the past two years is not very ideal, and Zhiou's explanation is that it is due to the continued rise in shipping prices and the volatile downward exchange rates of the euro and the US dollar against the RMB.

In the first quarter of 2023, Zhiou Technology's revenue is expected to be between 1.22 billion yuan and 1.32 billion yuan, and its net profit is expected to be between 73 million yuan and 83 million yuan. Based on this calculation, Zhiou Technology's net profit is expected to rebound in 2023.

Amazon is the main sales channel of Zhiou Technology. During the reporting period, Amazon's sales revenue accounted for about 70% of the main business revenue. In 2022, Amazon's revenue was 3.635 billion yuan; Zhiou Technology has been deeply involved in the European and American markets, and its revenue in Europe and North America in 2022 was 3.065 billion yuan and 2.244 billion yuan respectively.

From a product perspective, the furniture series and home furnishing series contribute the most to the company's revenue, of which the furniture series accounts for 48.09% of the revenue, with a revenue of 2.586 billion yuan in 2022; the home furnishing series accounts for 34.74%, with a revenue of 1.868 billion yuan in 2022. The main products are as follows↓

The furniture series products are mainly divided into living furniture and office furniture. Among them, living furniture includes TV cabinets, hallway shelves, bathroom cabinets, etc.; office furniture mainly includes office desks, computer desks, bookshelves, etc.

Home furnishing products are mainly divided into storage, appliances and decoration. Storage products include storage cabinets, shoe boxes, etc.; appliances include coat racks, clothes hangers, etc.; decoration products include photo walls, wall shelves, etc.

The courtyard series products are mainly divided into courtyard home furnishing, leisure and sports. Among them, courtyard home furnishing mainly includes rattan home furnishing sets, fences, etc.; leisure mainly includes hammocks, hanging chairs, etc.; sports mainly include trampolines, football goals, badminton nets, etc.

Pet products are mainly divided into pet furniture and pet home furnishings. Among them, pet furniture mainly includes cat climbing frames, etc.; pet furniture includes cat beds, dog beds, pet mats, etc.

Other products mainly include window display props, lighting products, etc.

Zhiou Technology's products are very popular among overseas consumers. Its products have not only successfully become one of the most popular home furnishing brands in the European and American markets, but also have been ranked at the top of the best-selling lists of third-party e-commerce platforms such as Amazon for many years. The company has also won titles such as "All-Round Seller" and "Amazon's Most Popular Brand Seller of the Year". Its own brands SONGMICS and VASAGLE were also selected into the list of "Top 100 Chinese Export Cross-Border Brands on Amazon Global Stores".

Judging from the above data alone, the development of Zhiou Technology can be described as smooth sailing, but judging from some internal data, hidden worries are gradually emerging.

With a weak proportion of R&D investment and over 600 million in inventory, Zhiou Technology is under great doubt

As a company that develops, designs and sells its own brand home products, Zhiou Technology should attach great importance to R&D. However, the editor compared the prospectus and found that compared with some big sellers in the industry, Zhiou Technology's R&D investment accounts for a relatively low proportion of revenue.

During the reporting period, Zhiou Technology's R&D investment was RMB 12.7693 million, RMB 24.5104 million and RMB 45.0106 million, respectively, accounting for 0.32%, 0.41% and 0.83% of the company's operating income, respectively. Although the amount of R&D investment has continued to increase, the proportion is low, far below the industry average.

However, Zhiou Technology also gave an explanation for the low R&D expense rate. The company's R&D does not require a large amount of raw materials, machinery and equipment and other consumables or fixed assets. It mainly involves the research and development of product material selection and adjustment, function updates, appearance design, visual image, etc., so the R&D expense rate is relatively low.

In contrast to the proportion of R&D expenses, the proportion of sales expenses of Zhiou Technology is relatively high. The sales expense rate in the past three years has been close to 40%. Even the company's management expenses in the past three years have been far higher than the company's R&D investment ratio.

In addition, the high proportion of inventory of Zhiou Technology is also a major risk for the company. During the reporting period, the book value of inventory of Zhiou Technology was RMB 859 million, RMB 1.052 billion and RMB 689 million, accounting for 47.83%, 30.70% and 19.81% of total assets, respectively. The proportion of inventory is relatively high.

Generally speaking, a high level of inventory will increase the company's inventory depreciation risk and capital occupation pressure to a certain extent. At the end of each period of the reporting period, the company's provision for inventory depreciation was RMB 13.5715 million, RMB 22.9870 million and RMB 10.1578 million respectively. If the market environment changes slightly, it will have an adverse impact on Zhiou Technology's financial status and operating results.

At the same time, the gross profit margin of Zhiou Technology's main business has also been declining year after year. During the reporting period, the company's main business gross profit margin was 54.78%, 49.64% and 48.32% respectively. Among them, the gross profit margin of the main business in 2022 fell by 1.33 percentage points compared with 2021.

Not to mention the current proportion of R&D expenses, given the high proportion of inventory and the continuous decline in profits, if Zhiou Technology fails to make timely improvements, the cumulative impact may be huge.

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