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Text/Daily Financial Report Lv Mingxia

Recently, the "first ergonomics stock" Lechuang Holdings (300729.SZ) released its 2024 semi-annual report, with increased revenue but no increased profit. According to the financial report, Lechuang Holdings achieved operating income of 2.427 billion yuan in the first half of 2024, a year-on-year increase of 44.64%; net profit attributable to the parent company was 160 million yuan, a year-on-year decrease of 63.86%, and non-net profit was 107 million yuan, a year-on-year increase of 29.95%.

Founded in 2002, Lechuang Holdings is a developer, manufacturer and distributor of smart home and healthy office products. Although Lechuang Holdings' revenue increased but profit did not increase in the first half of the year, cash flow pressure is looming, and its past glory is unlikely to return in the short term.

However, there are still bright spots to watch in the first half of the year. On the one hand, sales of main products have picked up; on the other hand, the overseas warehousing and logistics business that Lechuang has extended to enable the company's cross-border e-commerce business has become the company's second growth curve.

Smart home products are becoming more popular, and cash flow pressure is looming

The market size of smart home and healthy office industries is continuing to expand. According to IMARC data, the global office furniture market size was US$60.8 billion in 2022 and is expected to grow to US$77.4 billion by 2028, with a compound growth rate of approximately 4.05%.

The global market size of height-adjustable tables continues to expand. According to Credence Research data, the global market size of height-adjustable tables was US$6.7 billion in 2022. It is expected that by 2030, the global size of height-adjustable tables is expected to reach US$11 billion, with a compound growth rate of approximately 7.2%.

In the first half of 2024, Lechuang Holdings achieved operating income of 2.427 billion yuan, a year-on-year increase of 44.64%; net profit attributable to shareholders of the parent was 160 million yuan, a year-on-year decrease of 63.86%; non-net profit was 107 million yuan, a year-on-year increase of 29.95%.

As a comparable company in the same industry, Jiechang Drive recently released its performance forecast, showing that it is expected to achieve a net profit attributable to shareholders of RMB 185 million to RMB 195 million in the first half of 2024, a year-on-year increase of 116.46% to 128.18%, and a net profit attributable to shareholders of RMB 150 million to RMB 160 million, a year-on-year increase of 99.20% to 112.50%.

Lechuang Holdings stated that the reason for this performance change was mainly due to the sale of overseas warehouses in January 2023, which generated large non-recurring gains and losses, increasing revenue by approximately US$73.52 million (approximately RMB 532 million).

It is worth noting that the cash flow pressure of Lechuang Holdings is not small. The semi-annual report shows that Lechuang Holdings had cash and trading financial assets of about 1.98 billion yuan at the end of June, short-term loans of 926 million yuan, and non-current liabilities due within one year of 305 million yuan.

Although the company has enough cash to fully cover the debts that need to be repaid within one year, the company's long-term loans reached 960 million yuan. At the same time, as of June 30, the company's accounts receivable were 367 million yuan and accounts payable were 525 million yuan. The net cash flow from operating activities was 160 million yuan, a year-on-year decline of 54.29%.

Sales of main products pick up, and overseas warehouse business becomes the second growth curve

The main business of Lechuang shares is currently divided into two parts: smart home and healthy smart office products with linear drive as the core, and innovative service complex projects for cross-border e-commerce public overseas warehouses for the company's derivative business. The main products include smart office lifting tables, smart home tables, electric children's study tables, etc.

Data shows that the ergonomic workstation series of products are still the main source of the company's operating income. From the perspective of revenue structure, ergonomic workstations account for the majority of revenue, with revenue of 1.337 billion yuan in the first half of the year, accounting for 55.07% of operating income.

In fact, in the past few years, Lechuang Co., Ltd. has faced the hidden worry that its main products "cannot be sold". The semi-annual report for 2021-2023 shows that the sales volume of its linear drive lifting system products in the first half of the year was 613,400 sets, 686,000 sets, and 621,900 sets, respectively, with sales amounts of 790 million yuan, 920 million yuan, and 924 million yuan, respectively, with a slowdown in growth.

In the first half of this year, the sales volume of linear drive lifting system products reached 783,800 sets, with sales amounting to 1.02 billion yuan, a year-on-year increase of 10.42%.

However, the gross profit margin of ergonomic products hit the lowest level in the past seven years, down 1.33 percentage points year-on-year to 40.17%. The gross profit margin of this type of products once reached 50% at its highest.

The warehousing and logistics services have driven the overall growth of Legao's revenue. The semi-annual report shows that the overseas warehouse business has become Legao's "second growth curve". It is particularly worth mentioning that the gross profit margin of the overseas warehouse business has also continued to rise. The gross profit margin in 2023 is 12.69%, an increase of 9.32 percentage points from 2022. In the first half of this year, the gross profit margin reached 15%, an increase of 2.31 percentage points from the whole of last year.

The sale of overseas warehouses and government subsidies resulted in a large amount of non-recurring gains and losses

It is reported that Leckey's further exploration in the public overseas warehouse business has also been successful. The public overseas warehouse business has developed rapidly, achieving revenue of 851 million yuan, and the proportion of operating income has increased to 35.07%.

It is understood that the public overseas warehouse business is a derivative business of overseas sales, which generates revenue by providing logistics express, warehousing and other services to customers.

In the first half of this year, the proportion of Lechuang’s own-brand revenue (excluding overseas warehouses) has reached 68.93%. The sale of goods involves cross-border logistics. In order to ensure transportation, Lechuang has purchased and leased warehouses overseas as early as before. While providing self-use support for its own products, it also serves external third-party customers.

Specifically, under the overseas warehouse model, goods will be transported to the destination warehouse in advance, saving the first-leg delivery time. At the same time, returns and exchanges can be carried out at the destination, which makes cross-border e-commerce almost equivalent to localized e-commerce services, and has certain advantages and conveniences compared to traditional logistics.

According to Euromonitor data, the e-commerce penetration rate in major countries or regions around the world showed a clear turning point in 2019-2020, and the online shopping penetration rate is accelerating.

According to Frost & Sullivan's estimates, the scale of my country's cross-border e-commerce logistics market will be 3.6 trillion yuan in 2023 and about 4.0 trillion yuan in 2024, a year-on-year increase of 11.1%.

On the other hand, the rental costs of industrial warehouses in the United States have increased in recent years, which has prompted Legg Group to begin optimizing the layout of overseas warehouses, rolling out the sale of existing small warehouses, and purchasing land to build new large warehouses.

In 2023, based on the strategy of "small warehouse for big warehouse", Lechuang conducted five overseas warehouse transactions and land delivery. Since the beginning of this year, Lechuang Holdings has added five self-operated overseas warehouses. The semi-annual report shows that Lechuang has 17 self-operated overseas warehouses around the world, covering an area of ​​482,100 square meters.

It is precisely this strategy that has caused the amount of non-current asset disposal gains and losses generated by the disposal of warehouses to be particularly high in recent years, even exceeding 500 million in mid-2023, and reaching 62 million yuan in the first half of this year.

In addition, government subsidies are also a large part of non-recurring gains and losses, reaching 22 million yuan in the first half of this year. According to calculations, the non-recurring gains and losses generated by the above two factors in the first half of this year accounted for 52.5% of net profit, and even exceeded 80% in the first half of last year.

It can be seen that the gap between the net profit attributable to the parent company and the net profit attributable to the parent company after deducting non-recurring items of Lejia Holdings in recent years is not small, which also shows that it will be difficult for the company to reproduce the glory of 2020 in the short term.

In general, the semi-annual report of Lechuang Holdings presents a mixed picture. The semi-annual report also reveals some positive factors, but also challenges and concerns that cannot be ignored.