Child Wang'S Road Of Expansion In Adversity: Rapid Expansion Of Asset Liability Ratio Far Exceeds Peer Retail Gross Profit Rate, Which Requires Transformation Services

On the evening of January 10, the child Wang replied to the third round of inquiry letter of Shenzhen Stock Exchange gem.

Since the IPO application submitted to gem on July 13, 2020 was officially accepted, the child king has been widely concerned by the market. As a leading enterprise in maternal and infant retail and value-added services, the child king, established in 2012, has grown rapidly.

In 2014, the company's operating revenue was only 1.562 billion yuan, and reached 8.243 billion yuan in 2019. In six years, the income of child king has increased five times, with an average annual compound growth rate of 39.47%.

In the first half of 2020, even in the face of the impact of the new crown pneumonia epidemic, the total revenue of child king still reached 3.846 billion yuan, and the net profit reached 166 million yuan, about 44.03% of that in 2019.

Over the same period, the operating income of baby friendly room, which is also engaged in mother and baby business with child king, fell by 7.07% to 1.096 billion yuan, and the net profit attributable to shareholders of listed companies decreased by 29.18% to 44.1115 million yuan.

In the prospectus of child king, he attributed the stable performance of the company in the first half of 2020 to the development of its online business and the rapid recovery of its performance in the second quarter, saying that "in the first quarter, the company's store to store business (services, entertainment, etc.) basically stagnated, but the online business could normally develop, the company's Omni channel advantage was revealed, and the overall income was less affected."

The gross profit rate of maternal and infant commodities decreased year by year

Child king's yearning for the capital market has a long history.

As early as 2016, child Wang was listed on the new third board, with a market value of more than 14 billion yuan on the first day of listing. However, in 2018, the second year after Wang turned losses into profits, the company chose to delist from the new third board. At the time of the delisting, child king was still one of the enterprises with the highest market value in the new third board, with a total market value of 16.7 billion.

From the list of shareholders of child king, we can see that the capital is in favor of him. The shareholders include Lu Zhengyao, founder of Ruixing coffee, and Hillhead capital, a star venture capital firm.

During the reporting period, the profits of child king increased rapidly. From 2017 to 2019, the operating revenue of child king was 5.235 billion yuan, 6.671 billion yuan and 8.243 billion yuan, respectively, with a year-on-year growth of 17.51%, 27.43% and 23.56%; the net profit of the same period was 93.7993 million yuan, 276 million yuan and 377 million yuan, with year-on-year growth rates of 167%, 194 and 36.59%, respectively.

From the perspective of business segmentation, child king's main business includes maternal and infant goods and services, supplier services, advertising and platform services. Among them, maternal and infant commodities contributed the largest part of the revenue, accounting for 94.58%, 92.23%, 89.91% and 90.56% of the revenue during the reporting period.

However, the reporter of 21st century economic report has noticed that although the company's main business comes from maternal and infant commodities, the gross profit rate of the business is not too high, and in recent years, the gross profit rate has shown a trend of decreasing year by year.

From 2017 to 2019, the period expense rate of child king is 28.55%, 26.58% and 25.35%, and the comprehensive gross profit rate is 30.06%, 30.11% and 30.34% respectively

However, during the same period, the gross profit rates of the company's maternal and infant commodities were 26.93%, 25.50% and 23.78%, respectively, which were lower than the period expense rate.

At the same time, the company's maternal and child services, supplier services, advertising business, although the proportion of revenue is not high, but the gross margin is higher than the company's comprehensive gross margin and period expenses.

Taking 2019 as an example, the proportion of the above three businesses in the revenue is 3.23%, 5.17% and 0.69%, respectively, with the operating revenue of 264 million yuan, 421 million yuan and 55.904 million yuan, with the gross profit rate of 94.32%, 97.33% and 41% respectively.

"Child king's business model" is very similar to the transformation of many manufacturing industries. The gross profit of traditional retail channels is low, and with the fading of demographic dividend, the newborn market is gradually saturated, and retail business has entered the ceiling, making no money. Often, value-added services are the core value of the company. " On January 11, a domestic industry researcher engaged in consumer goods research pointed out to reporters, "the retail business of child king has actually become his customer channel, and the future development space is mainly based on a large number of scene interaction and value-added services carried out around the retail business."

Rapid expansion, soaring debt ratio

From the perspective of financial data, the remarkable feature of child Wang is the rapid growth of performance, among which the scale of operating income has reached 8.243 billion yuan by 2019. Behind this, it has something to do with the radical store expansion of child Wang.

According to the prospectus, in 2019, the net increase in the number of children's stores reached 94, more than the sum of 2017 and 2018. By the end of 2019, the company has opened 352 large-scale digital stores in 16 provinces, 3 municipalities directly under the central government and more than 150 cities in China, covering 70% of the cities with a population of more than 500000, and more than 50% of the revenue in East China. And in 2019, the number of member families will reach 33 million, and the number of black gold plus members will exceed 1 million.

From the perspective of market share, child king is one of the leading enterprises in China. Compared with the baby friendly room of comparable listed companies in the same industry, in 2019, the revenue and net profit of returning to the mother of child care room are 3.4 times and 2.45 times of those of baby care room, respectively, and the growth rate of revenue (23.56%) and net profit of return to mother (36.76%) of baby friendly room is higher than that of baby friendly room.

But behind the rapid expansion, the debt level of child king is also rising. Compared with the companies in the same industry, the debt level of child king is also in a higher position. From 2017 to 2019, the company's asset liability ratio was 63.20%, 60.52% and 60.87%, while the industry average was 53.54%, 53.66% and 58.31%, respectively. The asset liability ratio of baby friendly room was only 46.59%, 33.05% and 34.96%.

At the same time, the accounts receivable turnover rate and inventory scale of child king also remained far higher than the industry level, and continued to grow. According to the prospectus, from the end of 2017 to the end of the first half of 2020, the book value of child king's inventory was 631 million yuan, 779 million yuan, 994 million yuan and 985 million yuan respectively, accounting for 22.46%, 23.29%, 22.90% and 21.16% of the total assets in the same period.

At the same time, the turnover rate of accounts receivable of child king reached 163.01 times, 221.45 times, 198.23 times and 146.32 times respectively, maintaining a high level. In the same period, the average turnover rate of accounts receivable in the same industry was only 164.71 times, 146.21 times, 132.11 times and 111.99 times.

"From the perspective of market share and scale, child king is higher than baby room. The rapid expansion of leading enterprises must also require deep capital support. Child king's application for listing also hopes to achieve more rapid development with the help of the power of capital market." According to an interview with the industry researchers mentioned above.

The enthusiasm for expansion can also be seen from its prospectus. Wang said: "it plans to build 300 stores in 22 provinces (cities) such as Jiangsu, Anhui, Sichuan, Guangdong and Chongqing in the next three years. In a period of time after the completion of the project, it may face the risk that the profit level will be affected by the substantial increase of depreciation and amortization. "

However, this choice encountered market divergence. Some market participants believe that by vigorously opening new stores to seize the market, there are many risks buried in the environment of declining birth rate, and new stores need a certain period of market cultivation from opening to making profits, which will aggravate the uncertainty.

However, according to Huang zepeng, an analyst in the trade and retail industry of Kaiyuan securities, the expansion of head enterprises is expected to increase the industry concentration and change the industry pattern of strong regional and low concentration of maternal and infant markets.

"For downstream consumers, the products of mother and baby store have double endorsement of brand and channel, and also meet the one-stop shopping demand of new generation mothers, and have strong competitiveness in price. For the upstream brand side, the new product iteration is speeding up, the industry competition is becoming increasingly fierce, and the importance of new customers acquisition is enhanced. The offline store is the best channel for display and publicity, and the channel value in promoting and promoting new products is irreplaceable. " Huang zepeng pointed out.