The two ace products contribute more than 80% of the revenue, and this blockbuster will be launched soon!

Recently, Suzhou Oushen Electric Co., Ltd. (hereinafter referred to as "Oushen Electric" or the Company) obtained approval for its GEM IPO registration and completed its listing registration.

It is not easy for any company to gain a foothold in the cross-border e-commerce industry, which is facing increasing challenges and increasingly fierce competition. However, what did Oushen Electric, a major seller in East China, rely on to go public and succeed during this period?

East China Big Selling Passed Registration! Products Sold 1.3 Billion Yuan in One Year

As one of the leading domestic manufacturers of air power equipment and cleaning equipment with comprehensive advantages, Oushen Electric was founded in 2009 and initially established a limited company in Hong Kong. It is currently headquartered in Jiangsu Province. The prospectus shows that the company's main business is the research and development, production and sales of air power equipment and cleaning equipment , and small air compressors and wet and dry vacuum cleaners are the company's "ace products".

Since consumers in Europe and the United States are extremely fond of DIY products and are accustomed to purchasing semi-finished products or tools through e-commerce websites for house renovation, home decoration and other activities, household tool products are very popular in North America .

According to the data in the prospectus, the company's two flagship products are currently for household use and commercial use. Among them, there are more than 100 types of small air compressors for household use and more than 50 types for commercial use; there are more than 150 types of wet and dry vacuum cleaners for household use and more than 20 types for commercial use. The main application areas include automobile maintenance, building decoration, indoor and outdoor cleaning of homes, and cleaning of the interior of cars.

In terms of the revenue of the company's two flagship products, small air compressors accounted for a large proportion in the three years from 2018 to 2020, reaching 503 million yuan in 2020. However, in the first half of 2021, the revenue of small air compressors and wet and dry vacuum cleaners was 254 million yuan and 318 million yuan respectively, accounting for 37.5% and 46.96% of the company's main revenue. This is the first time that the revenue share of wet and dry vacuum cleaners has exceeded that of small air compressors.

In the first three months of this year , Oushen Electric's revenue is expected to reach 335 million yuan to 338 million yuan, an increase of 0% to 0.9% compared with the same period last year; net profit is expected to be 36 million yuan to 38 million yuan, a decrease of 5.76% to 0.53% compared with the same period last year; net profit after deducting non-recurring items decreased by 2.98% to 0.21% year-on-year, a small change compared with the same period last year.

According to the prospectus, last year Osun Electric's revenue reached 1.31 billion yuan. Over the years, Osun Electric has sold its products through multiple e-commerce platforms such as Amazon and Walmart , as well as home furnishing retail giants such as Costco, The Home Depot, and Lowe's .

In terms of business model, Osun Electric has four models: ODM, brand authorization, OEM and own brand ( OBM) , of which ODM and brand authorization are the main models. On Amazon and Walmart platforms, Osun Electric sells its own brand Stealth, as well as OEM products authorized by brands such as Stealth.

It is worth mentioning that this brand licensing model is different. Osun Electric signs a trademark use rights agreement with the brand licensor. Osun Electric leads product development and design, selects customers to sell within the specified region within the agreed period of the agreement, and pays trademark licensing fees. In other words, Osun Electric is still responsible for the company's products and operations.

At present, the two flagship products have obtained authorization from many well-known brands. Thanks to the brand authorization model, the sales of the products in various channels are very impressive. In addition, the revenue of Oushen Electric's own brand business in January-June 2021 also reached 44.91 million yuan.

Looking at the performance of Osun Electric in the past four years, it is not difficult to find that 2020 was the best year for Osun Electric, with revenue growth of more than 60% and net profit doubling. However, since 2021, perhaps due to the influence of multiple factors, Osun Electric's data has begun to decline...

Gross profit margin is compressed, and raw material costs account for more than 80% of Oushen Electric's

The substantial increase in Osun Electric's performance was also driven by its orders on hand. According to the data in the prospectus, Osun Electric's orders on hand were US$37.3898 million and US$54.6564 million at the end of September 2020 and December 2020, respectively, an increase of 221.47% and 231.82% over the same period in 2019, respectively. So far, Osun Electric has stated that its orders on hand are sufficient and showing an upward trend.

Perhaps this is also an important reason why Oushen Electric's revenue and net profit have continued to grow significantly under the epidemic in recent years. However, multiple factors such as the rising costs of raw materials, logistics, and exchange rate fluctuations in 2021 have disrupted this stable growth situation.

In terms of the gross profit margin of the main business in the three years from 2018 to 2020, it was 23.94%, 34.69% and 38.38% respectively , and its gross profit margin showed an upward trend year by year. During the reporting period, the unit cost of its main products, small air compressors and wet and dry vacuum cleaners, fell sharply, but the average unit price rose sharply, which also gave the gross profit margin a larger upward range. However, this good development momentum was interrupted. In the first half of 2021, Oushen Electric's gross profit margin fell to 25.64%.

Data from the prospectus shows that in recent years, the cost of raw materials for Oushen Electric has accounted for more than 85% of the cost of its main business. The prices of the company's main raw materials, steel and other products have basically shown a trend of first falling and then rising. Industry insiders have calculated that as long as the purchase price of raw materials including steel, plastics and metal parts rises by 10%, its gross profit margin will decrease by 6%.

The fluctuation of shipping prices is also one of the important factors affecting the gross profit margin of Osun Electric . Although compared with its peers, Osun Electric's transportation costs are not high, the fluctuation of its freight and insurance premiums has a significant impact. In particular, the single-container premium, which fluctuated greatly, increased from US$3,000/full container to US$3,906 in 2020 and then to US$8,578 in the first half of 2021. The single-container freight and insurance premium in the first half of 2021 increased by 116.61% over the previous year.

In addition, since 99% of Ousheng Electric's operating income comes from overseas, its sales revenue is mainly settled in US dollars. If the exchange rate between the US dollar and the RMB fluctuates significantly, it will directly affect Ousheng Electric's operating performance.

With the industry scale continuing to expand and products emerging in multiples, can Oushen Electric continue its growth momentum in 2021 and before? Industry insiders said that Oushen Electric is using the opportunity of listing to break the current tight production capacity and usher in a new development momentum.

It is reported that Oushen Electric mainly covers small air compressors and wet and dry vacuum cleaners, but mainly sells these two products through ODM model and brand authorization model. Among them, the capacity utilization rate of small air compressors has been higher than 130% for two consecutive years, and the capacity utilization rate of wet and dry vacuum cleaners has also exceeded 100% . The tight capacity situation of Oushen Electric has been confirmed again.

To this end, Oushen Electric also plans to invest the raised funds into a production technology transformation project with an annual output of 1.45 million air compressors, which may slightly increase the existing production capacity of small air compressors. Part of the funds will be invested in the production technology transformation project to rebuild the R&D center.

For Oushen Electric, if it succeeds in this attempt to enter the GEM, it will be an opportunity to break through the bottleneck and reach new heights again. However, some industry insiders also said that considering the proportion of Oushen Electric's exports and the Sino-US trade friction and other factors, Oushen Electric's performance may be under pressure again.

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