Zhongshan Huali Industrial Group Co., Ltd. (hereinafter referred to as “Huali Group”), the world’s leading professional manufacturer of sports shoes, recently disclosed its 2021 annual performance report. During the reporting period, the company achieved operating income of 17.470 billion yuan, year-on-year. An increase of 25.40% (excluding the impact of exchange rate changes, a year-on-year increase of 34.09%), and the net profit attributable to shareholders of listed companies was 2.768 billion yuan, a year-on-year increase of 47.34% (after excluding the impact of exchange rate changes, a year-on-year increase of 57.55%).
As of the end of the reporting period, Huali Group’s total assets reached 16.179 billion yuan, a year-on-year increase of 66.14%; the owner’s equity attributable to shareholders of listed companies was 10.927 billion yuan, a year-on-year increase of 90.32%.
As for the reasons for the performance changes during the reporting period, Huali Group explained that since 2021, vaccination has accelerated, the global economy has shown a clear scene of recovery and differentiation, and sports demand and sports shoe consumption have continued to recover after the epidemic. Because the company has strong new product development capabilities, it can quickly respond to changes in customer demand, expand production capacity through various measures such as building new factories, expanding factories, and implementing lean production, improve the operating efficiency of each factory, and attract various sports brands to increase orders from the company.
During the reporting period, Huali Group’s revenue from major customers increased significantly. At the same time, the company’s orders from new customers Asics, On, and NewBalance have been mass-produced and shipped. As the company continues to implement the business strategy of high-quality large customers , optimizing the customer and product structure, while actively promoting automation and lean production, improving production efficiency, and the gross profit margin has increased compared with last year, resulting in the growth rate of net profit being higher than the growth rate of operating income, while total assets and net assets have increased significantly, Mainly due to the company’s initial public offering of stock funds raised and the company’s net profit growth.
Ma Li, an analyst at Zheshang Securities, said that as a global leader in the sports shoe manufacturing industry, the demand for sports fashion and jogging shoes that Huali Group specializes in is growing strongly, and the company itself has an outstanding reputation for quality and delivery. Under the epidemic, There is still considerable progress in production expansion, which has become a solid backing for the few large customers who can undertake the continued growth ambitions. The industry pattern of insufficient supply is expected to allow Huali Group, which is still in the expansion cycle, to benefit from the double growth of orders and unit prices.
Shenwan Hongyuan Securities analyst Wang Liping also believes that under the high intensity of epidemic prevention and control and upward cost pressure, Huali Group’s performance will still achieve high growth in 2021, and its customer structure will be rapidly optimized, driving profitability improvement. Existing customers have strong demands for order growth and potential customers have vast space to expand. Huali Group’s future prospects of becoming the world’s largest professional sports shoe manufacturer are promising.
In Wang Liping’s view, Huali Group’s main customer terminal sales have been excellent, which has driven the growth of orders. According to the latest financial reports of Nike and Deckers, the sales of Nike brand sports shoes in 2021 will increase by about 20% year-on-year, and the sales of Hoka brand will increase by about 20% year-on-year. A huge increase of 59%. The boom in terminals is transmitted to the growth of manufacturing orders. In terms of US dollars, it is expected that Huali Group’s business revenue from these two major customers will grow at a rate of close to 50% or above. In addition, orders from new customers have been mass-produced and shipped, forming a new growth point. . Based on UA’s cooperation experience, the order volume has reached tens of millions of pairs in three years. In the future, orders from new customers such as Asics, OnRunning, and NewBalance are expected to increase rapidly, driving the continued growth of Huali Group’s revenue.
In 2021, Huali Group’s production and sales are expected to reach more than 210 million pairs, a year-on-year increase of nearly 50 million pairs. Looking forward to 2022, the production capacity of three new Vietnam factories will accelerate in 2021 and will contribute to the main increase in 2022. Coupled with the expansion of old factories to continue to flexibly increase production, and lean production to improve factory efficiency, Wang Liping predicts that production and sales are still expected to grow by 20% in 2022. In addition, northern Vietnam is deepening new cooperation space. The first phase of the Indonesian factory is expected to be put into production by the end of 2022. The Myanmar factory is waiting to restart construction. There is huge room for future production capacity.
Public information shows that Huali Group was founded in the 1990s. After decades of intensive industry development, it has become the world’s leading manufacturer of sports shoes, providing high-quality sports shoe development and development for Nike, Vans, UA, UGG, and Columbia. Production services (ODM). The company is currently the largest shoe supplier to Converse, UA, UGG, and Columbia, and is also the top ten shoe supplier to Nike.
Huali Group’s headquarters and design center are located in Zhongshan City, Guangdong Province. Its main production capacity is distributed in Vietnam, with a small amount of production capacity distributed in the Dominican Republic. Its trading centers are located in Hong Kong, Zhongshan, Guangdong, and Taiwan, China. As of the end of 2019, the company’s shoe production exceeded With 180 million pairs and more than 100,000 employees, it is the world’s leading professional manufacturer of sports shoes. In April 2021, the company was successfully listed on the Shenzhen Stock Exchange GEM.
Huali Group adheres to a steady production capacity expansion strategy and has opened a total of 20 shoemaking factories in China (shoe uppers), Vietnam, Dominica and other places. From 2016 to 2019, the company’s output expanded from 100 million pairs to 186 million pairs. Yield CAGR=23%. The company’s products are of high quality, leading delivery time, and extremely competitive.Products guarantee a relatively full production capacity, and the capacity utilization rate has always remained at 95% from 2018 to 2019. From the perspective of regional distribution, more than 98% of the company’s production capacity is located in Vietnam, and the Dominican Republic accounts for about 1.5% of the company’s production capacity. At the same time, the company explores the integrated production of shoe uppers, and its subsidiary Zhongshan Tengxing is responsible for the production of woven shoe uppers for use in the company’s finished shoe production.
Financial reports show that from 2017 to 2019, Huali Group’s operating income increased from 10.009 billion yuan to 15.166 billion yuan, with a CAGR of 23.1%. The COVID-19 epidemic in 2020 had an adverse impact on brand customer orders and factory operating rates. The company’s revenue fell by 8.1% year-on-year to 13.931 billion yuan. In 2021, with the post-epidemic economic recovery in some parts of the world, orders from the company’s major customers have increased significantly. At the same time, the company has actively expanded production capacity to effectively meet market demand. Revenue in the first three quarters increased by 22.6% year-on-year to 12.634 billion yuan. From 2017 to 2020, the company’s net profit attributable to shareholders of listed companies increased from 1.106 billion yuan to 1.879 billion yuan, with a CAGR of 19.3%. The profitability continued to improve due to the scale effect. In the first three quarters of 2021, the company achieved net profits attributable to shareholders of listed companies. Profit increased significantly by 51.6% to 1.997 billion yuan.
Chen Meng, a researcher at Beijing Capital Securities, said that in terms of products, sports and casual shoes are the core product of Huali Group. The company’s sports and casual shoe sales revenue increased from 7.17 billion yuan in 2017 to 11.28 billion yuan in 2020, with a CAGR of 16.3%, and the revenue proportion increased from 71.9% in 2017 to 81% in 2020, making it the company’s core product; The revenue volume of outdoor boots and shoes and sports sandals/slippers categories is small, and the revenue share is gradually shrinking. On the one hand, the company adopts a high-quality key customer strategy. As the company deepens its cooperation with brands such as Vans, Nike, and Puma, the growth of customer-related business has promoted the rapid growth of the company’s sports and leisure shoes revenue; on the other hand, due to the increase in the volume of sports and leisure shoes, In order to achieve higher production efficiency and customer demand, the company has also appropriately tilted its production capacity.
From observation, six of the top ten companies in the global sports shoes and apparel market share are the main customers of Huali Group. Under the strategy of high-quality large customers, the company’s customer concentration has been continuously increasing in recent years. In the first half of 2021, the top five customers accounted for 91.16% of the revenue, and the largest customer Nike (including the two major brands Nike and Converse) accounted for 91.16% of the revenue. More than 1/3. At the same time, except for the Nike brand, the company is the largest supplier of brands owned by its major customers (including Converse, UGG, Vans, Puma, Columbia, HOKAONEONE, ColeHaan). On the one hand, the strategy of high-quality large customers can ensure the large scale and stability of the company’s incoming orders; on the other hand, it can help concentrate resources to deeply integrate with high-quality customers, improve the professional level of development and design, and continuously consolidate professional technical barriers and customer barriers.
In Chen Meng’s view, Huali Group’s core customers are all internationally renowned sports brands, with large revenue and stable growth. Take Nike as an example. As the absolute leader in the global sports shoes and apparel market, Nike’s sales revenue continues to maintain steady growth. In the context of the sports and leisure trend becoming the mainstream aesthetic in recent years, the revenue of Nike brand’s sports and lifestyle products has grown significantly faster than other categories. Huali Group mainly provides sports and leisure shoes for Nike, fully enjoying the dividends of brand business growth. Huali Group has cooperated with Nike brand since 2012 and is still a new generation member in its industrial chain system. With the deepening of cooperation, the company is expected to gradually improve its position in the Nike brand supply chain, and there is room for sales revenue growth. broad.
Huali Group also said that judging from the current cooperation between the two parties and future production capacity planning, the company is relatively optimistic about the growth from Nike. Huali Group admitted that the cooperation between brand owners and manufacturers is very close, and they cooperate in all aspects from product development, development of new technologies and new materials to mass production. Different brands invest differently in development and technology. Some brands are more focused on design and marketing, and are more dependent on manufacturers in terms of technology. Nike, for example, invests heavily in technology development to ensure technological leadership. Judging from the division of labor in R&D cooperation with Nike: Nike will cooperate with material suppliers or other companies on new materials to develop new materials or formulas that can be used in sports shoes. These materials or formulas are applied to actual sports shoe manufacturing. It also needs to be optimized and improved based on the actual situation of mass production, which requires the contribution of manufacturers. At the same time, for some materials, the brand and the manufacturer jointly develop them, or the manufacturer develops them independently according to the brand owner’s performance requirements for the product. The manufacturing of sports shoes, in addition to the product development stage, also involves a lot of process innovation and improvement during mass production. The process basically relies on the manufacturer’s investment, such as the development of equipment, the application of new processes, the optimization of process flows, etc. to improve labor efficiency, improve production yield, etc.
In addition, Chen Meng also said that since 2021, as the prosperity of the sports shoe market has improved and the impact of the epidemic in various countries has weakened year-on-year, the order volume of brand customers is expected to grow steadily. According to the company’s product structure optimization trend, sports and leisure shoes will remain the main driving force of the company’s revenue growth. The growth rate of outdoor boots and shoes has slowed down after returning to pre-epidemic levels, and sports sandals/slippers will maintain rapid growth in the short term. At the same time, as the company deepens its cooperation with customers, the quality of orders is expected to continue to be optimized, and Huali Group is expected to gradually undertake the manufacturing of more high-unit-price products.
As of the publication of First Textile Network this evening, Huali Group closed at 84.76 yuan per share, an increase of 4.38%, with a market value of 98.9 billion yuan.
With the trend of structural optimization, sports and leisure shoes will still be the main driving force of the company’s revenue growth. The growth rate of outdoor boots and shoes has slowed down after returning to pre-epidemic levels, and sports sandals/slippers will maintain rapid growth in the short term. At the same time, as the company deepens its cooperation with customers, the quality of orders is expected to continue to be optimized, and Huali Group is expected to gradually undertake the manufacturing of more high-unit-price products.
As of the publication of First Textile Network this evening, Huali Group closed at 84.76 yuan per share, an increase of 4.38%, with a market value of 98.9 billion yuan.
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