(Report Producer Analyst: China Merchants ** Zhao Zhongping Hu Xiaoyu Shi Jinxing).
Greatstar Technology is an industry leader and a global leading company in hand tools.
Hangzhou Greatstar Technology Co., Ltd. was established in 1993 and listed on the Shenzhen Stock Exchange in July 2020. The company is in the tools and storage cabinet (tools &storage) industry, the main products include hand tools, power tools, laser measurement, storage cabinets (storage) four categories, mainly used in family home maintenance, construction engineering, vehicle maintenance, map surveying and mapping and other fields.
The company adheres to the concept of "going out": since its listing in 2010, it has continued to merge and integrate overseas well-known brands, forming a matrix of world-class well-known tool brands such as nail guns (arrow, bea), wrenches (sk), fixtures (pony&jorgensen), plastering (goldblatt), etcAccelerate the investment and construction of overseas factories, and have 21 production bases and 5 R&D centers around the world, as well as sales channels covering the world, directly serving the world's large-scale building materials, hardware, department stores, auto parts and other supermarket chains and various industrial users. The company has grown into a global company integrating local services in Europe and the United States, industrial chain manufacturing in Asia and management R&D in China.
1. Development history: originated in Hangzhou, and has been deeply involved in manufacturing for 30 years
The company's development process is divided into four stages.
Initial Exploration Phase (1993-2009):
In 1993, Greatstar Tools was established, starting from the hand tool industry, with products mainly in the early stage In 2007, Greatstar Tools joined Greatstar Group In 2008, the Xiasha base was completed, covering an area of 105 acres
Diversified development stage (2009-2010):
In 2009, we independently founded the first full-category comprehensive brand workpro;In July 2010, it was listed on the Shenzhen Stock ExchangeIn September of the same year, it acquired the hand tool-related assets of four companies, including Goldblatt, a century-old construction tool brand in the United States, including 11 professional hand tool brandsIn the same year, the steel shield brand Sheffield was created
Initial M&A stage (2010-2016):
In 2011, the first full-category DIY lighting tool brand was created
In 2015, it acquired Huada Kinge, developed the field of laser measurement, and began to develop 3D lidar products
In 2016, Oulei Laser was established to independently develop LiDAR;In the same year, Pony Tools, Inc. was acquiredand other three companies, including 12 professional well-known hand tool brands such as Pony &Jorgensen;
Extended M&A and Industrial Integration Phase (2016-2023):
In 2017, to 8600 million yuan to acquire a century-old tool brand in the United States;
arrow, vigorously develop the sales of pneumatic and power tool products in the global market;
In 2018, it acquired LISTA, the first brand of professional storage equipment in Europe, for 1.2 billion yuan
In 2019, it acquired the Swiss +Tech brand in the United States and began to build its own high-end brand of outdoor toolsIn March of the same year, it acquired Prime-Line, the largest supplier of replaceable hardware for doors and windows in North America, and increased its globalization strategy
In 2020, it acquired SHOP-VAC, a well-known brand of vacuum cleaners in North America, and began to fully enter the 100 billion power tool market, and in 2021, it acquired BEA, a century-old pneumatic tool brand in EuropeIn May of the same year, it acquired SK Tools, a century-old high-end hand tool brand in the United StatesIn July, the company acquired Geelong, the world's leading storage cabinet company, and gradually improved its brand matrix.
2. The shareholding structure is stable, and the founders have rich experience in mergers and acquisitions
The shareholding structure is concentrated, and the actual controller of the company is Mr. Qiu Jianping. Mr. Qiu Jianping has rich management experience and professional knowledge, and has 30 years of experience in his work. As of October 27, 2023, Mr. Qiu Jianping held a total of 3725% equity. The largest shareholder of Greatstar Technology is Greatstar Holding Group*** Mr. Qiu Jianping holds 8560% of the shares are the ultimate controller and actual beneficiary of the company.
3. Steady growth in revenue and gradual recovery of profitability
Operating income growth is stable, and the post-pandemic recovery is strong. From 2018 to 2022, the company's total revenue continued to rise, from 59 in 2018$3.5 billion rose to $12.6 in 20221 billion yuan. In 2022, the company's net profit attributable to shareholders of listed companies reached 142 billion yuan, a year-on-year increase of 1924%。As of the third quarter of 2023, the operating income and net profit attributable to the parent company were 861 billion yuan, 150.6 billion yuan, a year-on-year increase. 24%。
The development of power tools has accelerated, and ODM has been transformed into OBM. In terms of product categories, the proportion of operating income of power tools and laser measuring instruments has gradually increased, and the sales revenue of power tools business will reach 10 in 20212.1 billion yuan, a year-on-year increase of 45377%。
In addition to the epitaxial acquisition of brands such as Shop-Vac and BEA, the company has also independently developed and launched a series of power tool products to continuously expand the power tool business.
In terms of business model, the proportion of the company's OBM business revenue has continued to increase, from 19% in 2019 to 40% in 2022. The company is actively transforming from the ODM model to the OBM model, which enables the company to grasp market opportunities and make profitability stronger.
From the perspective of influencing factors, there are three main aspects of profitability repair: exchange rate fluctuations, raw material costs, and sea freight.
(1) Exchange rate fluctuations:More than 90% of the company's revenue comes from overseas markets, so the fluctuation of the RMB exchange rate will have a certain impact on the company's operating income. Most of the company's main business is denominated in US dollars, and the US dollar against the Chinese yuan has remained low in early 2021 until the beginning of 2022, and since the beginning of 2023, the US dollar has rebounded against the yuan**.
(2) Cost of raw materials:Steel** continued to rise in 2021, reaching its highest point at the end of 2021, and began to fall in 2022, and raw materials** gradually improved.
(3) Sea freight:The composite freight index fell from a high level in May 2022 and remained stable at a low level.
1. The demand in Europe and the United States is strong, and the market size of 100 billion yuan is open
The regional demand of the global hardware industry is concentrated in Europe and the United States. Nearly 90% of the company's products are sold to the Americas and Europe, because in most parts of North America and Europe, residents use a large number of independent buildings, and the per capita area is large, resulting in high maintenance costs and time-consuming maintenance of residential houses, while labor costs are relatively high, residents in Europe and North America are more willing to carry out their own repair and maintenance of houses and their outbuildings, so there are a large number of professional and DIY needs in North America and Europe, and it has become the most important and highest market in the global tool industry.
According to Stanley Black & Decker's 2023 presentation, about 63% of the company's revenue in 2022 came from the United States, with the rest coming mainly from Europe (15%), emerging markets (12%) and Canada (5%).
The hand tool industry has a long history, and the products are characterized by rigid needs and short replacement cycles. The scale of the tool industry has been rising, and the growth rate is relatively stable, as the oldest industry, the market space is broad.
According to the Frost & Sullivan report, from 2018 to 2022, the global tools market size grew from $82 billion to $103 billion, with a CAGR of 59%。In 2022, the global hand tool market and power tool market have exceeded $60 billion.
Driven by continued urbanization in emerging economies and economic recovery in developed countries, the global tools market is expected to maintain an annual growth rate of around 5% over the next five years.
The market competition pattern is stable, and overseas enterprises occupy a leading position. According to the Huajing Industry Research Institute, the top five companies in global tool revenue in 2021 are Stanley Black & Decker, TTI, Bosch, Makita, and Snap-On, with a market share of about 67% in 2021 and a market share of about 26%。As far as the market competition pattern of the hand tool industry is concerned, the product manufacturing threshold is low, the product types are diversified, and the competition pattern is relatively scattered, and the CR3 of the global hand tool manufacturers in 2021 is 323%, of which the market share of superstar technology is 62%。
2. The short-term inventory cycle replenishment has begun, and the medium and long-term North American housing has ushered in a boom cycle
We believe that the prosperity of the tool industry is mainly determined by two factors:
1) In the medium and long term, considering that the application scenarios of tools are divided into DIY and commercial, and the main consumption areas are in Europe and the United States, the long-term demand of the industry is linked to the capital expenditure cycle of real estate and manufacturing in Europe and the United States
2) In the short term, the demand for tools is relatively stable, and even the demand for DIY has a certain counter-cyclical attribute, which is reflected in the fact that when the consumption environment is weak and residents' household products are damaged, they will be more inclined to repair rather than replace.
Combined with the business model of strong channel attributes, retailers have a strong voice to speak, and under the influence of factors such as tariffs, shipping and international geopolitical relations, they will adjust their inventory operation strategies in stages, and this adjustment is transmitted to the shipment side of upstream brands and manufacturers to reflect a certain inventory cycle attribute, so the core factor that determines the short-term prosperity of the industry is the inventory level of retailers.
(1) Short-term: The inventory cycle leads to fluctuations in the growth rate of shipments, and 2023Q3 ushers in an inflection point for replenishment
Since 2023, retailers' inventories have peaked and fallen, and Q3 is expected to usher in a new round of replenishment cycle. Referring to the data of the U.S. Census Bureau, we can find that before 2020, the inventory of retailers of home and garden and electronic home appliances in the United States has been in a stable state for a long time, and the fluctuation is not obvious, and after 2020, there will be an extremely obvious round of replenishment cycle, which we believe can be divided into two stages:
Phase 1:China is the world's largest exporter of tool products, and since 2019, the United States has announced tariffs on some goods from China, and whether the tariffs are unilaterally borne or bilaterally apportioned, they will lead to an increase in the purchase cost of retailers.
Phase 2:In the second half of 2020, the epidemic began to break out overseas, and the closed loop of shipping was broken, resulting in congestionAt the same time, under the background of the epidemic, consumers have extended their time at home, and the demand for short-term tool products is relatively strong. Therefore, retailers are considering taking the initiative to replenish inventory again based on stockpiling and the high prosperity of the retail side.
After two consecutive rounds of inventory replenishment, the channel inventory of retailers in Europe and the United States has reached a historical high, while the demand side has begun to cool down under the influence of the Federal Reserve's continuous interest rate hikes, so since 2022Q3, retail has begun to enter the destocking cycle, and the order speed has slowed down, which is reflected in the decline in the order growth rate of domestic OEMs and brands at the upstream production end.
After about a year of destocking, the current inventory level has begun to peak and fall, and the inventory-to-sales ratio has also begun to return to normal levels, coupled with the Fed's subsequent interest rate cut expectations, we believe that 2024 is expected to usher in a new round of replenishment.
(2) Long-term: DIY demand is tied to real estate, and professional & industrial demand is linked to manufacturing investment
In the medium and long term, the demand of the tool industry in Europe and the United States is determined by the investment in real estate and manufacturing fixed assets. As mentioned above, tool demand scenarios are divided into household and commercial, among which household scenarios are mainly based on DIY needs, which are related to real estate prosperityCommercial scenarios include professional-grade and industrial-grade demand, which are linked to fixed asset investment in the manufacturing industry.
Referring to the data of the U.S. Census Bureau and the Bureau of Economic Analysis, we can find that the sales growth rate of home furnishings & building materials and gardens in the United States is significantly correlated with the growth rate of existing home sales, the growth rate of new private housing and the growth trend of private fixed asset investment in manufacturing.
For example, in terms of infrastructure investment, between 2016 and 2020, U.S. ** infrastructure spending increased from $309 billion to $384.1 billion, CAGR = 56%；In terms of the real estate market, new home sales in the United States from 2016 to 2020 increased by 5610,000 sets increased to 8220,000 sets, CAGR=100%；During the same period, the power tool market in North America grew from $8.3 billion to $11.7 billion, CAGR = 90%, which is similar to the growth rate of infrastructure investment and housing sales.
At the end of the U.S. active destocking cycle, orders are expected to pick up and repair. At the beginning of H2 2022, due to the slowdown in downstream demand and temporary pressure, the three leading retailers in the United States took the initiative to destock, and until Q2 2023, Walmart's inventory gradually rose to -5 year-on-year5%, inventory levels are expected to normalize.
Historically, the judgment of the company's management to turn to inventory management has a certain lag compared with the downstream market demand.
Looking forward to next year, as the U.S. inventory cycle gradually enters passive destocking, it will have a positive pull effect on the company's order repair, and the company's earnings are expected to stabilize and rebound.
The consumption of hand tools has a high correlation with the real estate economy, and it is a post-cycle attribute. The downstream of hand tools involves various industries, covering residential, commercial, industrial, electronics, automotive after-sales, retail, ** and other fields, among which real estate, as an important engine of economic development, also has a direct or indirect impact on the consumption of other industries, so the consumption of hand tools resonates with the real estate economy, and the industry is highly correlated, such as the leader Stanley Black & Decker's 2019 income, 83% of which comes from the housing commercial field.
New home sales are booming, and the existing home sales boom is expected to recover steadily after the start of the Fed's interest rate cut cycle in 2024. Since Q2 2023, the overall demand for the global tool market has picked up.
In terms of new housing, in September 2023, 75 percent of new homes were sold in the United States90,000 sets, +33 year-on-year9%, the highest since February 2022;+123%, the largest month-on-month increase since August 2022;The inventory of newly built housing in September was 4410,000 sets, a year-on-year increase of -64%, the prosperity of the new housing market in the United States is at a high level.
In terms of existing home sales, the U.S. sold 3.96 million existing homes in September 2023, a year-on-year increase of -154%；The inventory of existing home sales in September was 1.13 million units, a year-on-year increase of -81%。The sales of new housing in the United States are high, the inventory of new homes and existing homes is declining, and the recovery of downstream real estate prosperity is expected to support the recovery of the tool market.
3. Power tools: the global market space of 30 billion US dollars, the demand is growing steadily
Among the power tools, power tools account for more than 7 percent, and the market scale is growing steadily. According to Frost & Sullivan data, the global power tools market size reached $39.2 billion in 2020, with a CAGR = 6% from 2016 to 2020.
According to the nature of energy, power tools can be divided into two categories: power tools and other power tools (mainly pneumatic), of which the market size of power tools in 2020 will reach 29.1 billion US dollars, accounting for 74%, which is currently the most mainstream type of power tools, and the market size is expected to grow to 38.6 billion US dollars in 2025;The market space for other power tools is about 10 billion US dollars, accounting for a relatively low proportion.
Nearly 7 percent of power tools are commercially available, and the proportion of consumer grade is relatively low. According to the application scenarios, power tools can be divided into three categories: industrial-grade, professional-grade and consumer-grade, of which commercial (industrial-grade + professional-grade) occupies the main market.
According to Frost & Sullivan data, the market size of commercial power tools will reach $20.2 billion in 2020, accounting for 69%, and the competition between brands will become more intenseIn contrast, the consumer grade accounted for only 31%.
1. The theory of mergers and acquisitions is mature, and the business focuses on global leaders
Acquire the leading enterprises in the subdivision field, and continuously expand the industry field and product matrix. In 2017, the company acquired arrow, and the company began to vigorously develop the field of pneumatic and electric toolsIn 2019, it acquired Swiss and added a series of special micro toolsIn 2020, it acquired Prime-Line to provide customers with one-stop hardware accessories replacement solutions. In 2020, it acquired Shop-Vac and fully entered the power tool marketIn 2022, we will acquire Ailun Clean to expand the product line of pump and valve series.
In the mature tool market, mergers and acquisitions are an effective way to expand in overseas markets, and in addition to acquiring brands, overseas channel capabilities have been significantly improved. At present, Superstar has obtained abundant channels and customer resources in the European and American markets.
Through the acquisition and integration of companies such as arrow, shop-vac and geelong, the company has entered Wal-Mart, Homedepot and other large American retailers, and effectively expanded the supply and marketing system of small community supermarket chains to improve the retail channels in the United StatesAt the same time, the company acquired well-known European companies such as BEA and LISTA, obtained high-quality customer resources such as automobiles, airlines, and top luxury brands, and used distribution subsidiaries to expand distribution channels.
2. The global first-class chain is fine, and the downstream retail first-class capacity is strong
The global first-class chain system is finely managed, and it is not afraid of the impact of overseas friction. After decades of development, the company has 21 manufacturing bases in the world, established a global first-class chain management system with China as the core, and established good cooperative relations with thousands of first-class merchants around the world, so as to achieve global procurement and global manufacturing, which can not only ensure that the company can quickly respond to market demand and complete the timely delivery of various large orders, but also maintain stable supply capacity even in the context of the epidemic period and the tight shipping cycleAt the same time, it can greatly reduce the comprehensive procurement cost and enhance the market competitiveness of the company's products. In 2022, all factories in Southeast Asia have been put into use, and the production capacity layout in Southeast Asia has taken shape.
Relying on the sales of large-scale supermarkets, the structure of the top five customers is stable. At present, there are more than 20,000 large hardware, building materials, auto parts and other chain supermarkets in the world. It has become one of the largest customer service providers including Lowes, Home Depot, Wal-Mart, B&Q, Kingfisher, Carrefour, and CTC. Through continuous mergers and acquisitions to expand market share and enrich the product matrix, the company's top five customers continue to increase the proportion of total sales, reaching nearly 50% in 2022.
3. R&D and innovation establish brand status, and cross-border e-commerce thickens brand advantages
The company has invested heavily in R&D and its own brand has grown rapidly, and has been upgraded from a made-in-China ODM company to an international OBM company that combines Chinese design, Asian manufacturing, and European and American local services.
The company's R&D investment continues to increase, and the company's total investment in 2022 will be 31.9 billion yuan, 2,105 new products were designed, and more than 300 new patent applications and patent authorizations were granted.
Cross-border e-commerce continues to grow, increasing the advantages of independent brands. In 2015, Greatstar Technology opened the road of cross-border e-commerce through Amazon's "global store".In 2018, the company continued to increase the construction of e-commerce sales channels, and fully launched global product sales on third-party e-commerce platforms such as Amazon, eBay, AliExpress, etc., and achieved a growth of more than 100% in its own brand revenue compared with 2017, and the independent e-commerce platform Tumao.com achieved sales revenue of more than 80 million yuan, becoming a leading vertical tool e-commerce company in ChinaIn 2019, through the new channel of e-commerce, the sales revenue exceeded 50 million US dollars.
Up to now, the company has continued to make efforts in cross-border e-commerce channels, and cross-border e-commerce direct sales have now become the most important sales channel for superstars in addition to traditional large supermarket chains, and it aims to continue to maintain a growth rate of nearly 50% in cross-border e-commerce business in 2023.
4. Electric opens the second growth curve, and the proportion of independent brands increases
The proportion of the company's power tools continues to increase, and has now increased to 2243%。From 2021 to 2022, the revenue of power tools will double, accounting for 9 percent of total revenue35% to 2015%。In 2023H1, the revenue of power tools will reach 117.7 billion yuan, accounting for 22 percent of total revenue43%。At present, the revenue volume is still small, but there is a lot of room for improvement.
Power tools continue to be invested, and the results are gradually apparent. In 2020, the company formulated a plan to restart the power tools business, and vigorously implemented it in 2021. In 2021, as the first year of the company's power tools, the sales revenue of the power tool business will be 102.1 billion yuan, a year-on-year increase of 45377%。In 2022, the revenue of power tools will reach 254 billion yuan, a year-on-year increase of 14880%。
The proportion of self-owned brands continues to increase. From 2019 to 2022, the proportion of the company's OBM revenue will increase from 1932% to 4035%, OBM revenue growth rate is higher than ODM. In 2023H1, the company's OBM revenue accounted for 4893%, which is expected to surpass ODM to become the company's primary business model. We expect the company's OBM to account for 50% this year.
The recovery of the U.S. real estate sector has been less than expected:The company's hand tool profit is affected by the United States, and if the recovery of the U.S. real estate industry is less than expected, it will affect the company's performance.
The speed of channel replenishment is not as fast as expected:The procurement speed of downstream channel providers is not as fast as expected, which will affect the company's performance.
Exchange rate fluctuation risk, raw material cost increase risk, ocean freight risk rise:The company's raw materials are mainly bulk commodities, the rise in raw material costs will affect the company's profitability, the company's main products are sold to Europe and the United States, if the exchange rate and shipping freight fluctuations will affect the company's profitability.
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