Summary of KaiRun Co., Ltd. Conference Call Company Overview - **Company**: KaiRun Co., Ltd. - **Date**: August 28, 2025 Key Points Financial Performance - **Revenue**: In the first half of 2025, revenue reached 2.43 billion yuan, a year-on-year increase of 32.5% [2][3] - **Net Profit**: The net profit attributable to shareholders was 187 million yuan, with a year-on-year operational net profit growth of approximately 23% after excluding one-time gains [2][3] - **Segment Performance**: - **ToB Manufacturing**: Revenue of 2.098 billion yuan, up 37.22% [3] - **ToC Business**: Revenue of 310 million yuan, up 8.87% [3] Segment Analysis - **Luggage Segment**: Revenue of 1.42 billion yuan, a 13% increase year-on-year; the growth in the luggage manufacturing segment approached 50% due to new clients like Queens and VF [2][4][5] - **Apparel Segment**: Revenue of 680 million yuan, a significant increase of 148% year-on-year; gross margin improved to approximately 16% due to product structure optimization and efficiency improvements [2][4][6] Operational Improvements - **Production Efficiency**: Efficiency in Indonesian garment factories improved by about 8%, while Chinese factories saw a 6% increase [6] - **Supply Chain Management**: Implementation of SAP systems to enhance supply chain control and management capabilities [6] Capacity Expansion - **Indonesian Production**: Ongoing expansion of the Indonesian Baodao factory, with a projected 40% increase in soft package production lines and around ten new production lines for luggage by 2026 [7][8] - **Employment Impact**: Over 20,000 jobs created in Indonesia, with strong local government partnerships [12] Market Dynamics - **Tariff Impact**: The new U.S. tariff policy has led to a shift in procurement towards Indonesia, with many clients planning to move at least one-third of their supply chains there [12][24] - **Client Performance**: Major clients like Uniqlo and Adidas showed strong growth, while Nike and Decathlon's growth was below average due to their own performance issues [9][17] Future Outlook - **Growth Strategy**: The company plans to continue focusing on efficiency improvements while gradually increasing order intake, with expectations of double-digit growth in the second half of the year [10][18] - **Revenue Projections**: The target revenue for the apparel segment is approximately 1.8 billion yuan for the year, with a focus on maintaining operational efficiency [15][18] Brand Performance - **Brand Revenue**: Brand operations generated 310 million yuan, with Xiaomi contributing over 210 million yuan, reflecting a 25% growth [4][13] - **Profitability**: Brand gross margin was 24.14%, down 1.1 percentage points, but both Xiaomi and 90 Fen brands saw improvements in their respective margins [13][21] Customer Acquisition - **New Client Development**: The company is actively pursuing new clients, particularly in high-margin outdoor brands, while maintaining relationships with existing major clients [16][20] Challenges and Mitigation - **Tariff-Related Pricing Pressure**: The company is addressing pricing pressures from clients due to tariffs by enhancing product margins through operational improvements and new order development [25][26] Conclusion - Overall, KaiRun Co., Ltd. demonstrated strong financial performance in the first half of 2025, with significant growth in both the luggage and apparel segments. The company is strategically expanding its production capacity in Indonesia while navigating challenges posed by new tariff policies. The outlook for the second half of the year remains positive, with expectations for continued growth and efficiency improvements.

Investment Rating - The investment rating for the company is "Buy" [5] Core Views - The company demonstrated strong growth in operating net profit, with a 23% increase in H1 2025, despite a decline in net profit due to one-time investment income from the fair value reassessment of Shanghai Jiale [1][4] - The company's revenue reached 2.427 billion yuan in H1 2025, a year-on-year increase of 32.5%, while the net profit attributable to the parent company was 187 million yuan, down 24.8% year-on-year [1] - The company is expected to achieve double-digit growth in OEM revenue, driven by its production capacity advantages in Indonesia and an expanding client base [4] Summary by Sections OEM Manufacturing - In H1 2025, OEM manufacturing revenue was 2.098 billion yuan, up 37.2% year-on-year, with bag manufacturing revenue at 1.419 billion yuan (up 13.0%) and apparel manufacturing revenue at 679 million yuan (up 148.3%) [2] - The gross margin for OEM manufacturing was 24.67%, an increase of 0.96 percentage points year-on-year, with apparel gross margin significantly improving due to enhanced management and integration [2] Brand Operations - Brand operations revenue was 306 million yuan in H1 2025, an increase of 8.9% year-on-year, with distribution revenue at 251 million yuan (up 28.3%) and online revenue at 55 million yuan (down 35.4%) [3] - The gross margin for brand operations was 24.14%, a decrease of 1.10 percentage points year-on-year, but is expected to recover as new products are launched and channels are optimized [3] Financial Forecast and Investment Recommendations - The company is projected to achieve revenues of 5.164 billion yuan, 5.916 billion yuan, and 6.776 billion yuan for 2025, 2026, and 2027 respectively, with year-on-year growth rates of 21.8%, 14.6%, and 14.5% [4] - The net profit attributable to the parent company is expected to be 372.4 million yuan, 459.2 million yuan, and 558.8 million yuan for the same years, with growth rates of -2.3%, 23.3%, and 21.7% respectively [4]

Group 1 - The "China Online Consumption Brand Index" (CBI) and "Global Brand China Online Top 500" (CBI500) show a growth in online consumer brand index from 63.38 in Q1 2025 to 65.17 in Q2 2025, indicating a trend towards purchasing quality brand products among Chinese consumers [1][2] - The index reflects that during major shopping events like the 618 and Double 11 festivals, consumers tend to choose quality brands over low-priced private labels, highlighting the importance of online promotional activities for brand management and quality consumption [1][2] - The CBI500 list sees significant changes with Apple, Midea, Xiaomi, Haier, and Huawei occupying the top five positions, while traditional brands like Six God and Diamond Fan also make it to the top 500 due to increased sales and search volume in summer categories [1][2] Group 2 - The newly introduced "Fast-Moving Consumer Goods (FMCG) New Brands List" indicates a recovery trend and growth potential in China's FMCG sector, with 48 out of 50 listed brands being emerging brands from mainland China [2] - Key factors for new brands transitioning from "internet celebrity" to sustainable success include understanding high-value consumer preferences and repeat purchase behavior [2][3] - The research emphasizes the need for new brands to shift from a "traffic mindset" to "user lifecycle management" to effectively engage high-value users through product innovation and service experience [3]

Core Insights - The "China Online Consumption Brand Index" (CBI) and related indices show a continued growth in online consumer brand engagement, with the CBI rising from 63.38 in Q1 2025 to 65.17 in Q2 2025, indicating a strengthening trend towards purchasing quality brand products [1] Group 1 - The increase in the CBI reflects a growing consumer preference for quality brands over low-cost alternatives, particularly during major shopping events like the 618 and Double 11 festivals [1] - E-commerce platforms are becoming crucial for brand management and quality consumption, with promotional activities playing a significant role in influencing consumer choices [1]

Core Viewpoint - The event highlighted the promotion of high-quality brands in Shandong, with a focus on the innovative practices of Huaguang Guoci in the ceramic industry, showcasing their commitment to quality and cultural heritage [1][3]. Group 1: Product Promotion - Huaguang Guoci introduced four classic products, including the "Qianfeng Cuise. Shanghe Leaders Tea Set" and "Hefeng Tea Set," which are part of the "Hua Kai China" series launched at the LEC Global Licensing Expo [3]. - The collaboration with China Central Television (CCTV) aims to combine natural aesthetics with ceramic art, enhancing global visibility and recognition [3]. Group 2: Innovation and Technology - Huaguang Guoci has developed advanced materials and technologies, including lead-free glazes and antibacterial glazes, achieving a 100% inhibition rate against E. coli and Staphylococcus aureus [5]. - The company’s bone china has a thermal stability standard of 200 degrees, surpassing the international standard of 140 degrees [5]. Group 3: Brand Development Strategy - The company aims to establish itself as "China's First Ceramic Brand" and "World-renowned Ceramic Brand" through strategic media partnerships and brand promotion efforts [8]. - Huaguang Guoci has successfully created a market phenomenon of high demand for its Spring Festival ceramic products, reflecting the effective integration of traditional culture and consumer needs [8]. Group 4: Commitment to Quality and Cultural Heritage - The company emphasizes a high-quality operational system based on independent innovation, brand management, and quality leadership, transitioning from scale expansion to high-quality development [7]. - Huaguang Guoci aims to make its ceramics accessible to everyday consumers, promoting health and artistry in daily life while maintaining high standards [8].

Core Viewpoint - The credit rating of Anhui Kairun Co., Ltd. remains at A+/Stable, supported by the expansion of its OEM manufacturing business and improved profitability, despite facing challenges from intense market competition in the luggage and apparel industry [1][5]. Company Overview - Anhui Kairun has diversified its OEM manufacturing business by incorporating Shanghai Jiale Co., Ltd., enhancing its product offerings and client base [1][7]. - The company has established relationships with well-known clients, contributing to a significant increase in profitability during the tracking period [1][9]. Financial Performance - Total assets increased from 35.16 billion in 2022 to 53.69 billion in 2025, while total liabilities rose from 17.49 billion to 27.01 billion during the same period [4][12]. - Operating revenue grew from 27.41 billion in 2022 to 42.40 billion in 2024, with a notable increase in net profit from 0.55 billion to 4.01 billion [4][12]. - The company's EBITDA increased significantly, reflecting improved operational efficiency and profitability [10][12]. Market Environment - The luggage and apparel industry is characterized by fierce competition, with a need for the company to optimize its debt structure and manage production capacity effectively [3][5]. - The global luggage market is projected to reach 170.2 billion by 2025, with China's market expected to grow at a rate of 5.9% [5][6]. Operational Insights - The company has expanded its production capacity, particularly in the apparel sector, but faces challenges in achieving optimal utilization rates [7][9]. - The acquisition of Shanghai Jiale has allowed the company to enter the textile and apparel manufacturing sector, diversifying its business model [7][10]. Risk Factors - The company must monitor the absorption of its new apparel production capacity and the impact of market competition on its operations [3][5]. - High short-term debt levels and the upcoming maturity of "Kairun Convertible Bonds" in 2025 necessitate a review of the company's debt management strategies [3][10].

Group 1: Company Performance - In 2024, the company achieved a main business revenue of 419,163.57 million RMB, a year-on-year increase of 36.54% [9] - The net profit attributable to shareholders reached 38,099.86 million RMB, up 229.52% year-on-year [9] - The net profit attributable to shareholders after deducting non-recurring gains and losses was 29,105.10 million RMB, reflecting a growth of 109.67% [9] Group 2: Market and Industry Outlook - The global luggage market is expected to reach 170.2 billion USD in 2025, growing by 6.1% [6] - The Chinese luggage market is projected to reach 232.7 billion RMB, with a year-on-year growth of 5.9% [6] - The global apparel market is anticipated to reach 1,509.9 billion USD in 2025, with a growth rate of 4.1% [6] Group 3: Strategic Initiatives - The company is focusing on high-quality customer strategies in its manufacturing segment, aiming to expand capacity and explore new production areas [7] - Plans to enhance digitalization, automation, and intelligent manufacturing capabilities are underway to improve operational efficiency [7] - The company aims to strengthen its brand through innovative product design and expanding sales channels [7] Group 4: Shareholder Engagement - The company is considering various methods to enhance investor relations and market recognition, including potential stock buybacks and roadshows for institutional investors [6][7] - There is an ongoing evaluation of shareholder welfare programs, such as customized gifts to enhance engagement and brand recognition [10][12]

Group 1 - The core issue highlighted is that brands relying solely on emotional appeal without solid product quality and innovation are unlikely to succeed in the market [1][2] - The emergence of new-generation consumers, who possess stronger product discernment and value judgment, indicates that product quality and innovation are crucial for brand success [2][3] - Brands must establish a systematic strategic approach, focusing on core competencies, avoiding blind expansion, and ensuring efficient operations across all stages from R&D to sales [2][3] Group 2 - Emotional consumption can drive short-term sales but is not sustainable for long-term brand development [2][3] - Brands should balance marketing efforts with a commitment to product quality and innovation to meet diverse consumer needs and enhance customer experience [3] - A rigorous approach to quality control and continuous exploration of consumer needs are essential for brands to maintain consumer trust and market opportunities [3]

Group 1: Sales Performance - The company's overseas market sales revenue for 2024 is approximately $34 million, representing a year-on-year increase of about 90% [2] - In Q1 2025, the company reported revenue of $595 million, a year-on-year growth of 10.27%, with a net profit of $67.55 million [4] - The company's contract liabilities decreased from $150 million at the beginning of the quarter to $70 million by the end, indicating a significant reduction [5] Group 2: Product Development and Innovation - The company has developed multiple konjac products and plans to innovate based on market needs to enhance sales scale [3] - In 2024, the company launched several innovative products, including nitrogen-packed deep-sea fish rich in DHA and zero-additive quail eggs [4] - The company focuses on three main categories: fish products, poultry products, and bean products, with six major product lines [4] Group 3: Market Strategy and Brand Development - The company is enhancing brand awareness through collaborations with celebrities and influencers on social media platforms [5] - There are no current plans to invest in snack chain stores to increase market share [4] - The company emphasizes a high dividend policy, having introduced mid-term dividends in 2024 [4] Group 4: Operational Challenges and Responses - The company faces challenges in its internationalization strategy but is actively working to develop products that meet local tastes and standards [2] - The negative change in operating cash flow in Q1 was primarily due to increased cash payments for goods and services [3] - The company has no current plans for share reduction but will disclose any future plans as required [3]

Investment Rating - The investment rating for the company is "Buy" (maintained) [5] Core Views - The company's performance is expected to be strong, with significant contributions from the consolidation of Jia Le. In 2024, the company achieved revenue of 4.24 billion yuan (up 36.6% year-on-year) and a net profit attributable to shareholders of 0.381 billion yuan (up 229.5% year-on-year) [1][5] - The company's manufacturing segment saw revenue growth driven by acquisitions and improved production efficiency. In 2024, the manufacturing revenue reached 3.534 billion yuan (up 44.6% year-on-year), with notable growth in apparel manufacturing [2] - The brand management segment is actively expanding new channels, with a revenue of 0.658 billion yuan in 2024 (up 5.1% year-on-year). The collaboration with Xiaomi has deepened, launching multiple new products [3] Summary by Sections Performance Overview - In Q1 2025, the company reported revenue of 1.234 billion yuan (up 35.6% year-on-year) and a net profit of 0.085 billion yuan (up 20.1% year-on-year) [1] - The company’s net profit margin for 2024 was 9.0% (up 5.3 percentage points year-on-year) [4] Manufacturing Segment - The manufacturing revenue for 2024 was 3.534 billion yuan, with apparel manufacturing revenue growing by 146.4% year-on-year [2] - The gross margin for manufacturing in 2024 was 22.55%, with a decline attributed to the consolidation of Jia Le [2] Brand Management - The brand management revenue for 2024 was 0.658 billion yuan, with distribution revenue increasing by 20.8% year-on-year [3] - The gross margin for brand management was 25.52%, reflecting adjustments in product and channel structure [3] Financial Projections - Revenue projections for 2025-2027 are 5.344 billion yuan, 6.222 billion yuan, and 7.190 billion yuan, respectively, with year-on-year growth rates of 26%, 16%, and 16% [5][11] - The net profit attributable to shareholders is projected to be 0.384 billion yuan in 2025, with a growth rate of 0.7% [5][11]