1. How is the company able to price its products so cheap vs peers? What's the differentiator in its value chain that allows it to do so?
2. The products it sells have a long replacement cycle so, the revenue is not recurring. From where do you believe the growth will come from - market share gains, cross-selling to existing customers etc.?
Hi Pranjal, thank you very much for your comments and questions!
1. First of all, the price of SN's products falls on the mid-to-high-end of the full spectrum. It's not cheap. So I assume you are comparing it with high-end peers such as Dyson. In this case, SN benefits from its supply chain in China, while Dyson's supply chain does not involve in China, but in UK, Singapore, and Malaysia, which are not cheap. It's still a big cost advantage so far. But for the future SN is developing its supply chain in other low-cost countries such as Vietnam. Let's see how it goes. The second reason is the efficiency and integration with the supply chain, as SN has its R&D team at OEM's factories for faster reaction. In comparison, most peers rely on ODM as far as I know. Lastly, I think it's SN's strategy to give up some margin for a cheaper price and larger volume. So it's EBITDA margin is lower than Dyson's (12% vs 20% in 2022). I don't think Dyson could lower its price as a luxury brand. If so, it's shooting at its own feet. You can think SN as the Zara or Shein in small appliance. As long as it keeps this strategy in a legal way, it's a great advantage.
2. You are right. It's not a recurring model so I rated it as a grade-B business. However, there are clearly momentum for its business in the next few years. In more developed markets, its new products such as the portable grills and ice cream maker can help it grow. Also I'm very excited about the Europe market. It's growing 80% this year. If it keeps delivering products that European consumers like, I guess it can deliver 30%+ CAGR in Europe in the foreseeable future. Plus, it's really a low base in 2022 as the channel was destocking. It's very likely they are going to restock in H2 2023 or 2024, so that will bring some growth momentum in the near future, too.
3. SN's gene is informercial. It's very good at viral marketing. And its innovation and wow price is a natural feature to catch people's eyeball. I believe SN is going to keep doing that.
Yeah, I'm afraid they will not be as helpful to the readers as ideas in more developed countries. But I've found a really good VN company. Thanks for sharing!
As a US investor, I’m attracted to the brand, additional penetration, and margin expansion. My biggest fear is the China exposure - just been burned a few times recently. I’ll look into it deeper and let you know if I have questions. Thanks!
I believe many US companies' supply chain is as much exposed to the geopolitical risk as SN does. If that's what you worry about. I've visited one of SN supplier's factory in Vietnam. They told me SN is requiring them to put more manufacturing out of China. So I'm sure SN is aware of that risk too.
In terms of whether Chinese gov would threat Mr. Wang to dump his SN stock or destroy the business with his controlling power, I guess so far it's still a minor risk.
Hi Daniel, thank you so much for the kind words! I'm very curious how you think about it from a US investor's perspective. And just let me know if you have any questions.
Wonderful writeup. Thanks for sharing mate.
A few questions on my end:
1. How is the company able to price its products so cheap vs peers? What's the differentiator in its value chain that allows it to do so?
2. The products it sells have a long replacement cycle so, the revenue is not recurring. From where do you believe the growth will come from - market share gains, cross-selling to existing customers etc.?
3. What's the customer acquisition strategy?
Thanks
Hi Pranjal, thank you very much for your comments and questions!
1. First of all, the price of SN's products falls on the mid-to-high-end of the full spectrum. It's not cheap. So I assume you are comparing it with high-end peers such as Dyson. In this case, SN benefits from its supply chain in China, while Dyson's supply chain does not involve in China, but in UK, Singapore, and Malaysia, which are not cheap. It's still a big cost advantage so far. But for the future SN is developing its supply chain in other low-cost countries such as Vietnam. Let's see how it goes. The second reason is the efficiency and integration with the supply chain, as SN has its R&D team at OEM's factories for faster reaction. In comparison, most peers rely on ODM as far as I know. Lastly, I think it's SN's strategy to give up some margin for a cheaper price and larger volume. So it's EBITDA margin is lower than Dyson's (12% vs 20% in 2022). I don't think Dyson could lower its price as a luxury brand. If so, it's shooting at its own feet. You can think SN as the Zara or Shein in small appliance. As long as it keeps this strategy in a legal way, it's a great advantage.
2. You are right. It's not a recurring model so I rated it as a grade-B business. However, there are clearly momentum for its business in the next few years. In more developed markets, its new products such as the portable grills and ice cream maker can help it grow. Also I'm very excited about the Europe market. It's growing 80% this year. If it keeps delivering products that European consumers like, I guess it can deliver 30%+ CAGR in Europe in the foreseeable future. Plus, it's really a low base in 2022 as the channel was destocking. It's very likely they are going to restock in H2 2023 or 2024, so that will bring some growth momentum in the near future, too.
3. SN's gene is informercial. It's very good at viral marketing. And its innovation and wow price is a natural feature to catch people's eyeball. I believe SN is going to keep doing that.
Hope that answers your questions. Thanks!
Alex
Interesting... I will include in next Monday's "Emerging Market Links + The Week Ahead" post e.g. https://emergingmarketskeptic.substack.com/p/emerging-markets-week-august-28-2023
That's very complimentary! I'll post some emerging market ideas such as Vietnamese and Indonesia ones in the future. Stay in touch!
My last post covered several of the usual suspects in Indonesia + see this write-up: https://emergingmarketskeptic.substack.com/p/champ-resto-indonesias-natl-restaurant-champion The trouble with Vietnam is accessing the market outside of the London listed closed-end funds and the ETF...
Yeah, I'm afraid they will not be as helpful to the readers as ideas in more developed countries. But I've found a really good VN company. Thanks for sharing!
As a US investor, I’m attracted to the brand, additional penetration, and margin expansion. My biggest fear is the China exposure - just been burned a few times recently. I’ll look into it deeper and let you know if I have questions. Thanks!
I believe many US companies' supply chain is as much exposed to the geopolitical risk as SN does. If that's what you worry about. I've visited one of SN supplier's factory in Vietnam. They told me SN is requiring them to put more manufacturing out of China. So I'm sure SN is aware of that risk too.
In terms of whether Chinese gov would threat Mr. Wang to dump his SN stock or destroy the business with his controlling power, I guess so far it's still a minor risk.
That’s really helpful - thank you!
This is very well done
Hi Daniel, thank you so much for the kind words! I'm very curious how you think about it from a US investor's perspective. And just let me know if you have any questions.