35 million orders in three years? The company has stopped selling and is now going public

Since 2022, cross-border large-scale sellers have been entering the capital market. Following the successful entry of large-scale sellers such as Saiwei and Zibuyu, the listing of Jiangsu large-scale seller Kangliyuan has also been put on the agenda recently.

On December 4, Kangliyuan disclosed its initial public offering and submitted a prospectus for listing on the Shenzhen Stock Exchange's Growth Enterprise Market. Kangliyuan plans to raise 626 million yuan for this listing, which will be used for projects such as smart fitness equipment manufacturing, R&D center construction, smart digital factory construction, and replenishment of working capital.

Kangliyuan was founded in 1998 and has been engaged in the export of fitness equipment for more than 20 years. Its specific products cover a variety of products including anaerobic fitness equipment, aerobic fitness equipment, outdoor fitness equipment, etc., with more than a thousand types.

▲ The picture comes from Kangliyuan's prospectus

It is reported that Kangliyuan's sales model is mainly based on a system that combines domestic and foreign sales, online and offline, ODM and independent brands. At present, overseas sales business is the main operating body of Kangliyuan, and the proportion of revenue from the main business has increased year by year from 71.12% in 2019 to 82.57% in the first half of 2022.

Data from the prospectus shows that from 2019 to 2021, Kangliyuan achieved revenue of 382 million yuan, 675 million yuan and 702 million yuan respectively, and its performance showed a steady upward trend.

However, while the revenue growth rate slowed down in 2021, Kangliyuan's net profit also fell by 16.16% compared with the same period last year. In the first half of 2022, both revenue and net profit fell.

▲ The picture comes from Kangliyuan's prospectus

Looking at the revenue structure of Kangliyuan's main business, it is mainly divided into two modules: indoor fitness equipment and outdoor fitness equipment, with the former accounting for more than 90%. As of the first half of 2022, Kangliyuan's anaerobic equipment sales accounted for 84.75%, about 274 million yuan; aerobic equipment sales accounted for 9.86%, about 5.1197 million yuan.

▲ The picture comes from Kangliyuan's prospectus

At present, Kangliyuan's products are exported to more than 20 countries and regions including the United States, Europe, and Australia. In the first half of 2022, its global market share of fitness equipment was about 0.80%, and its export sales revenue accounted for 1.75% of China's total fitness equipment exports.

As an export-oriented seller, Kangliyuan's overseas sales model mainly consists of online third-party e-commerce platforms and offline physical retail stores. Driven by the dividends of cross-border e-commerce, Kangliyuan began to open stores on Amazon in 2017. From 2019 to 2021, the Amazon platform achieved revenues of 16.1304 million yuan, 70.6245 million yuan, and 63.1646 million yuan, respectively.

It is learned that Kangliyuan’s main brand on Amazon is JXFitness. Its products cover multiple fitness equipment categories such as dumbbells and barbell racks. It has accumulated a certain brand reputation.

▲ The picture comes from Kangliyuan's prospectus

In addition, the prospectus also disclosed that from 2019 to the first half of this year, the number of customers who purchased products in Kangliyuan's Amazon store was 14,883, 92,519, 88,391, and 37,461, respectively, with a peak of nearly 100,000 purchases. Amazon, as a major sales channel, also contributed a considerable gross profit margin to Kangliyuan, with the gross profit margin of overseas online direct sales reaching 74.24% in 2021.

However, Kangliyuan, which has been developing rapidly by leveraging cross-border dividends, has seemingly impressive performance, but it also has hidden secrets.

After years of hard work, Kangliyuan has established stable and in-depth cooperation with brands such as Adidas, Argos, and Costco. However, at the same time, the "household products + overseas sales OEM" business model also makes it face the risk of excessive customer concentration.

The prospectus shows that during the reporting period, Kangliyuan's top five customers accounted for 56.67%, 54.04%, 58.43% and 57.86% of its main business. Among them, the direct sales to Impex, the largest customer, accounted for 59.53% of its revenue in the first half of this year, up from 35.62% in 2019.

▲ The picture comes from Kangliyuan's prospectus

Since key customers account for more than half of the revenue, their sales orders have a great impact on Kangliyuan. Therefore, once the cooperative relationship between the two parties fluctuates, Kangliyuan's operating performance is likely to fluctuate as well.

On the other hand, behind Kangliyuan’s glorious performance, there is an “unknown” history of false orders.

It is reported that Kangliyuan's stores on platforms such as Tmall and JD.com have all engaged in fake orders. From 2018 to 2020, Kangliyuan's fake order amounts were 8.1441 million yuan, 20.9577 million yuan, and 6.5909 million yuan, respectively, accounting for 2.22%, 5.52%, and 0.98% of its main business income, respectively. Overall, Kangliyuan's fake order amount in three years totaled approximately 35.6927 million yuan.

It is learned that Kangliyuan's order-brushing model is mainly operated by the domestic e-commerce department. After the employees of the e-commerce department place an order for products on the platform through friends or a team engaged in order-brushing, the company will send empty packages or gifts to the purchasers. The company will then pay the funds and order-brushing commissions to the order-brushing personnel through the employees of the e-commerce department.

Of course, Kangliyuan also stopped in time and stopped the practice of brushing orders in June 2020 and actively rectified it. It formulated relevant systems prohibiting brushing orders, clarified the relevant responsible persons, and effectively put an end to the practice of brushing orders.

It is worth noting that during the reporting period, Kangliyuan and its subsidiaries also committed a number of illegal and irregular acts involving environmental protection, market supervision, taxation, etc., and were fined many times by relevant supervisory departments.

Although Kangliyuan is now on the verge of an IPO, its operating performance has also shown some concerns. Affected by the rising costs of shipping costs, raw materials, etc., Kangliyuan's performance growth momentum has come to an abrupt halt since 2021, and its profit margin has been further squeezed.

The prospectus predicts that Kangliyuan's revenue in 2022 will be between 605 million yuan and 670 million yuan, a decrease of 4.58% to 13.84% from the same period last year; the net profit attributable to the parent company will be between 92.5 million yuan and 110 million yuan, a year-on-year increase of 5.39% to 41.80%.

In the field of exporting fitness equipment, where will Kangliyuan’s rudder head in the future?