Chinese Manufacturer Loctek Plans to Raise CNY 500Mn to Construct Overseas Warehouse in US

Consumer Discretionary Author: Muriel Meng Editor: Yiru Qian Dec 27, 2023 07:00 PM (GMT+8)

Home furnishing companies going global are undergoing a transformation from product globalization to supply chain globalization.

Home Furnishing

Recently, according to public information obtained by EqualOcean, the leading home furnishing company going global, Loctek Ergonomic Technology Corp. (referred as "Loctek", 300729: SZ), plans to raise CNY 500 million through stock issuance for the construction of an overseas warehouse in the United States.

This project has received approval from the Shenzhen Stock Exchange. As an important part of cross-border e-commerce supply chains, Loctek is improving its supply chain by establishing comprehensive innovation service complexes for public overseas warehouses.

Loctek expects that by 2027, the total area of its public overseas warehouses in the United States will reach approximately 339,300 square meters, with an annual handling capacity exceeding 7 million items. These overseas warehouses will primarily be used for warehousing, distribution, and return services for cross-border e-commerce, providing support for the crucial last-mile delivery.

According to Loctek, in 2024, based on business development needs, they plan to lease new overseas warehouses with an area of 100,000 to 150,000 square meters. They also plan to construct warehouses in the East and West of the United States, which are expected to be operational by 2025. In the future, the company will gradually utilize over 800 acres of reserved land to build its own warehouses, replacing leased warehouses and enhancing the gross and net profit levels of overseas warehouses.

According to the official website, Loctek was established in 2002. In 2013, the company began its transformation, gradually shifting its main business to the research, development, production, and sales of ergonomic products and linear drive components. It also established its first overseas warehouse in the United States. The company went public on the ChiNext board of the Shenzhen Stock Exchange on December 1, 2017, with the stock code 300729. Loctek has two mature industries: smart homes and public overseas warehouses. It is the first A-share listed company in the health and ergonomic industry and the first cross-border e-commerce company to go public through an IPO. The company adheres to the model of developing both independent brands and ODM private label production. The domestic brand "LOCTEK" has already captured a certain market share, while the overseas brand "Flexispot" is becoming increasingly mature.

In recent years, Loctek's overseas revenue has been gradually increasing, although the company has not disclosed revenue data by region this year. According to public data, the overseas revenue of Loctek was approximately CNY 1.746 billion, CNY 2.605 billion, and CNY 2.919 billion in 2020, 2021, and 2022, respectively, accounting for about 90% of the total revenue.

At the same time, the company is pursuing economies of scale by expanding its overseas warehouse facilities. In the first three quarters of this year, the company achieved a significant increase in net profit attributable to shareholders, partly due to the sale of its overseas warehousing business in California, which increased after-tax income. Additionally, Loctek is still acquiring land and constructing new large-scale warehouses. The 10 public overseas warehouses operated by Loctek mainly provide services to third-party customers, with a relatively low self-use ratio.

It is worth noting that the construction of overseas warehouse facilities has high investment costs and a long payback period. According to Loctek's prospectus, the payback period for new projects may take around 10 years. However, Loctek has stated that it will continue to implement the "small warehouse to large warehouse" strategy and plans to sell some small warehouses and build new self-owned warehouses.

In addition to Loctek, several leading home furnishing companies have initiated private placements to increase investment in overseas production bases. For example, Mlily (Chinese: 梦百合) successfully raised CNY 800 million in November, mainly for expanding its production base in Arizona, United States, among other projects. Qumei Home Furnishing (Chinese: 曲美家居)recently received approval from the China Securities Regulatory Commission and plans to invest the raised capital of CNY 210 million in the capacity upgrading and construction project of its Norwegian factory, Ekornes.

The large-scale construction of overseas warehouses and production bases by these home furnishing companies indicates that China's leading companies in the home furnishing industry have moved beyond the stage of "product globalization" and entered a new stage of "supply chain globalization". Some experts believe that compared to traditional product exports, supply chain globalization is a sign of a mature stage. It can improve product sales efficiency and user experience while avoiding issues such as tariff barriers. However, supply chain globalization comes with higher costs and requires strong financial capabilities from companies, so it needs to be approached with caution.