GLOBAL PLAYER IN THE OUTDOOR FURNITURE MARKET -
Oneall International Limited (ASX: 1AL) designs, manufactures and distributes outdoor furniture, selling its products in 42 countries. The company was established in 2001 and listed on the ASX in December 2015 to provide it with access to capital markets and the
opportunity to expand.
KEY POINTS
High Margin Manufacturer and Distributor of Outdoor Furniture: 1AL designs, manufactures and distributes outdoor furniture around the world. The company owns and operates its manufacturing facility in Guangdong, China, where the company’s key products are produced. The company has historically had a focus on the mid-tier and high-end markets. This combined with the company’s distribution model of primarily selling direct to retail customers sees the company generate earnings margins that are significantly higher than its
peers.
Global Customer Base: The company distributes its products to 42 countries. Europe is the largest market for the company, however the company is focusing on reducing the concentration of this market through growth in other regions. One area of focus is Australia,
in which the company currently only has a small market share. The company is currently seeking to enter into distribution relationships with some local retail distributors to increase sales in Australia. Increasing the presence in Australia is important from a strategic viewpoint, with sales in this market offering the potential to smooth out the sales cycle, given the majority of revenue is generated from sales in the Northern Hemisphere during the warmer months. North America is also a market in which the company has indicated as a potential growth prospect.
Moving to Original Brand Manufacturer Model: The company is in the process of transitioning its business model from Original Design Manufacturer (ODM) to Original Brand Manufacturer (OBM). Under the OBM model, the company’s products are identified with its
own branding. 35% of revenue in FY16 was generated from OBM business. The OBM model gives the company more control over the distribution chain and greater brand recognition with customers.
Vertical Integration of Distribution Chain: The company is seeking to secure demand through the acquisition or joint venture with wholesalers. This will secure demand through ensuring the wholesaler will distribute 1AL’s product range. Further to this, the company may potentially look to acquire retail chains in markets where the company is seeking to grow it’s presence to secure demand.
Capacity Expansion: The company is currently at full capacity at its manufacturing facility in China. As such, in order to grow sales the company will need to expand its facilities, which management currently intend to do in 2017. Capacity is expected to be expanded by 20%- 25%, which would increased in the manufacturing capacity at the company’s China facility to 528,000 - 550,000 pieces of furniture per year.
Protectionist Policies May Impact Growth: The move towards protectionist policies in
recent times may impact the growth prospects of the company in some markets. The
company has indicated it’s appetite to expand in North America, however, if President Trump
delivers on his election promise to impose a 45% tariff on all Chinese produced products,
this may make the company’s products uncompetitive in this market.
Investment View: We have assigned 1AL a target price of $1.32 per share. This represents
a 39.7% premium to the share price at 30 March 2017. The target price was determined
using a DCF methodology over the next five financial periods. The target price is based on
the assumption that the company will complete the expansion of its manufacturing facility
in 2017 and will ramp up capacity usage to 95% in 2019. In the event this is not achieved
the company will not achieve the expected future cashflows. The company has a tight
shareholder register with the only a small portion of shares on issue as free float. As such
there is low levels of liquidity in the stock. This will remain until further shares are issued or
until the executive team releases a parcel of shares.
07 Apr 2017
ASX - Oneall International Limited (ASX: 1AL) Industrial - Outdoor Furniture - Global Footprint - 42 Countries
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ASX - Oneall International Limited (ASX: 1AL) Industrial - Outdoor Furniture - Global Footprint - 42 Countries
Oneall International (1AL:ASX) | 0 0 0.0% | Mkt Cap: 116.1m
- Published:
07 Apr 2017 -
Author:
Independent Investment Research Team -
Pages:
16
GLOBAL PLAYER IN THE OUTDOOR FURNITURE MARKET -
Oneall International Limited (ASX: 1AL) designs, manufactures and distributes outdoor furniture, selling its products in 42 countries. The company was established in 2001 and listed on the ASX in December 2015 to provide it with access to capital markets and the
opportunity to expand.
KEY POINTS
High Margin Manufacturer and Distributor of Outdoor Furniture: 1AL designs, manufactures and distributes outdoor furniture around the world. The company owns and operates its manufacturing facility in Guangdong, China, where the company’s key products are produced. The company has historically had a focus on the mid-tier and high-end markets. This combined with the company’s distribution model of primarily selling direct to retail customers sees the company generate earnings margins that are significantly higher than its
peers.
Global Customer Base: The company distributes its products to 42 countries. Europe is the largest market for the company, however the company is focusing on reducing the concentration of this market through growth in other regions. One area of focus is Australia,
in which the company currently only has a small market share. The company is currently seeking to enter into distribution relationships with some local retail distributors to increase sales in Australia. Increasing the presence in Australia is important from a strategic viewpoint, with sales in this market offering the potential to smooth out the sales cycle, given the majority of revenue is generated from sales in the Northern Hemisphere during the warmer months. North America is also a market in which the company has indicated as a potential growth prospect.
Moving to Original Brand Manufacturer Model: The company is in the process of transitioning its business model from Original Design Manufacturer (ODM) to Original Brand Manufacturer (OBM). Under the OBM model, the company’s products are identified with its
own branding. 35% of revenue in FY16 was generated from OBM business. The OBM model gives the company more control over the distribution chain and greater brand recognition with customers.
Vertical Integration of Distribution Chain: The company is seeking to secure demand through the acquisition or joint venture with wholesalers. This will secure demand through ensuring the wholesaler will distribute 1AL’s product range. Further to this, the company may potentially look to acquire retail chains in markets where the company is seeking to grow it’s presence to secure demand.
Capacity Expansion: The company is currently at full capacity at its manufacturing facility in China. As such, in order to grow sales the company will need to expand its facilities, which management currently intend to do in 2017. Capacity is expected to be expanded by 20%- 25%, which would increased in the manufacturing capacity at the company’s China facility to 528,000 - 550,000 pieces of furniture per year.
Protectionist Policies May Impact Growth: The move towards protectionist policies in
recent times may impact the growth prospects of the company in some markets. The
company has indicated it’s appetite to expand in North America, however, if President Trump
delivers on his election promise to impose a 45% tariff on all Chinese produced products,
this may make the company’s products uncompetitive in this market.
Investment View: We have assigned 1AL a target price of $1.32 per share. This represents
a 39.7% premium to the share price at 30 March 2017. The target price was determined
using a DCF methodology over the next five financial periods. The target price is based on
the assumption that the company will complete the expansion of its manufacturing facility
in 2017 and will ramp up capacity usage to 95% in 2019. In the event this is not achieved
the company will not achieve the expected future cashflows. The company has a tight
shareholder register with the only a small portion of shares on issue as free float. As such
there is low levels of liquidity in the stock. This will remain until further shares are issued or
until the executive team releases a parcel of shares.