A seller in East China is rushing for IPO and has made tens of millions of orders in 3 years!

The fire of fitness has spread from consumers' daily life to the A-share market. As a company mainly engaged in fitness equipment, Jiangsu Kangliyuan Technology Co., Ltd. (hereinafter referred to as "Kangliyuan") is also striving for an IPO. In the official prospectus, we also found some clues.

Kangliyuan made 35 million orders in 3 years

As a company mainly engaged in fitness equipment, Kangliyuan was established in 1998. Its products mainly include anaerobic fitness equipment, aerobic fitness equipment, outdoor fitness equipment, etc. There are more than 1,000 products in multiple series. Currently, Kangliyuan is rushing for an IPO on the Shenzhen Stock Exchange and is in the registration submission stage . The sponsor is Donghai Securities Co., Ltd.

It is understood that Kangliyuan's export business accounts for more than 80% of its main business. There are two main sales models overseas. One is to supply well-known foreign brands in OEM/ODM mode, and the other is to operate its own brand JXFitness on Amazon , directly selling dumbbell benches, weightlifting beds and other small and light fitness products to C-end consumers.

On the Amazon platform , Kangliyuan's sales revenue in 2019-2021 was RMB 16.1304 million, RMB 70.6245 million, and RMB 63.1646 million , respectively. The revenue in 2020 increased significantly compared with 2019, while the revenue in 2021 declined. In the first half of 2022, the operating income was RMB 22.2218 million. Kangliyuan said that the decline in operating income was due to the continued increase in shipping costs, which further squeezed the company's profit margins.

One thing worth noting is that Amazon, as a sales channel, has contributed the highest gross profit to Kangliyuan. In the data provided by Kangliyuan, we can see that the company's gross profit margin attributable to the parent company has been basically around 30% in the past three years, but in 2021, Kangliyuan's gross profit from overseas online direct sales models such as Amazon was as high as 74.24%. This shows that Amazon is still a channel that is very worthy of deep cultivation by sellers.

In addition, we found in Kangliyuan’s prospectus that the company engaged in fake order practices.

According to Kang Liyuan, the specific operation of the company's fake orders is that after the e-commerce department employees place an order for products on the platform through friends or a team engaged in fake orders, the company will send empty packages or small gifts to the purchasers. Subsequently, the e-commerce department employees will pay the fake order commissions to the people who do the fake orders.

Through this fake order model, Kangliyuan has continued to operate multiple online stores for three years. According to statistics, from 2018 to 2020, Kangliyuan's fake order amounts were 8.1441 million yuan, 20.9577 million yuan, and 6.5909 million yuan, respectively, with a total fake order amount of more than 35 million yuan.

During the process of Kangliyuan's listing, its financial information was publicly audited and the relevant data was questioned by the outside world. Many industry insiders believed that the company's fake orders meant financial fraud and there would definitely be problems during the audit process. However, Kangliyuan stated that the company's fake orders did not confirm revenue, and the commissions and platform fees paid during the fake orders were recorded as sales expenses. The company did not inflate revenue and profits through fake orders as mentioned by industry insiders.

Compared with a number of sellers, Kangliyuan's fake order amount is not small. At that time, Amazon also cracked down on this behavior, and most big sellers suffered heavy losses. Under Amazon's heavy blow, many sellers began to rectify, and Kangliyuan was no exception. The prospectus pointed out that Kangliyuan had stopped fake orders in June 2020. By formulating relevant systems for fake orders and clarifying relevant responsible persons, Kangliyuan actively rectified and effectively eliminated the situation of fake orders.

Returning to the product itself from fake orders, we found that both the fitness equipment category and the Amazon platform are very worthy of sellers' in-depth exploration.

The revenue of this category is as high as 160 million, and anaerobic equipment is the most popular

Kangliyuan's prospectus data shows that its revenue in 2019-2021 and 2022 was 382 million yuan, 675 million yuan, 702 million yuan and 324 million yuan, and the net profit attributable to the parent company was 34.7013 million yuan, 93.6543 million yuan, 78.5251 million yuan and 44.4614 million yuan respectively.

Judging from the data, although Kangliyuan's revenue increased in 2021, it is obvious that the growth rate has slowed down, and net profit has shown a downward trend. Combined with Kangliyuan's revenue on Amazon mentioned at the beginning of our article, although it accounts for a low proportion, its gross profit exceeds 70%. In terms of contributing to the company's net profit, Amazon has a greater say.

Looking at the products, we can find that the comprehensive training equipment among anaerobic equipment contributes the most to the company's revenue, with revenue of 160 million yuan in the first half of 2022, accounting for 51.10% ; followed by free weight training equipment, with revenue of 103 million yuan in the first half of the year, accounting for 31.96%. The revenue share of aerobic equipment and outdoor fitness equipment is relatively low.

Different from other companies that have to pay the price for their own brands, Kangliyuan has focused on building its own brands since its inception. Currently, it is focusing on building multiple brands including JXFitness, Junxia, ​​Kangliyuan, etc., and the proportion of brand business is close to 20%.

However, supplying goods to buyers through ODM or OEM models abroad is still the business that Kangliyuan relies on the most. The sales revenue generated under this model is close to 70% of the company's total revenue. According to the customer list published in the prospectus, Kangliyuan's main customers are mostly fitness equipment companies or large retailers and brand owners. The sales revenue of the top five customers accounts for more than 50% of the main business revenue.

Of course, for some smaller traders, Kangliyuan will also supply products under its own brand. It has currently reached a series of cooperation with companies including Walmart, Adidas, Argos, Costco, etc.

In fact, thanks to the improvement of health awareness among people in various countries, the global fitness equipment market size is in a stage of sustained growth. The industry market size in 2020 has reached US$11.6 billion, and it is expected that by 2028, the size of this market will reach US$14.8 billion.

Relevant data show that from January to August 2021, the region with the largest amount of fitness equipment exports from China was the United States, with exports reaching US$2.21 billion, accounting for 34.78%; followed by the United Kingdom and Germany, with exports reaching US$340 million and US$330 million, respectively, accounting for 5.41% and 5.16%, respectively.

In terms of market segments, the European and American markets are still the fitness equipment markets that many sellers have been deeply involved in, and a stable market structure has been formed. In the United States, among the more than 300 million people, more than 60 million are fitness members, and the proportion of fitness population continues to grow. The scale of the European fitness market is also in a state of continuous growth. Data shows that 40% of Europeans exercise at least once a week. According to forecast data from some institutions, in the next 3-5 years, the growth rate of the sports industry in North America and Europe will reach 7.4% and 4.2% respectively.

Due to the epidemic, outdoor sports have been significantly reduced, and more and more people have started to exercise at home. They are particularly fond of some small and lightweight home fitness equipment, such as yoga mats, foam rollers, elastic bands, dumbbells, elliptical machines, treadmills, and spinning bikes. As an important fitness equipment manufacturing country, China accounted for 53% of the global fitness equipment market in 2017. For sellers, they can rely on China's strong supply chain to work hard on fitness equipment.

Kangliyuan

IPO

Fake orders