New Stock Preview | Profit volatility is difficult to hide under high business growth, can Woodpecker still improve the company's fundamentals?

A woodpecker that fixes everything except feelings has recently paved its way to the Hong Kong Stock Exchange. On September 30, Woodpecker Maintenance International Limited, from Chongqing, submitted its prospectus to the Hong Kong Stock Exchange, intending to list on the main board in Hong Kong, with CICC and Zhongtai International as joint sponsors. The company had previously submitted an application to the Hong Kong Stock Exchange on January 29, 2024, which later expired on July 29. It is understood that the history of Woodpecker Maintenance can be traced back to April 2004, when the company's founders, brother and sister Wang Guowei and Wang Yuhua, established an individual business engaged in repairing and maintaining refrigeration equipment in Chongqing. In December 2014, the Wang siblings jointly established Chongqing Woodpecker. To this day, Woodpecker has become the largest family maintenance platform in China. According to data from Input Advisory, based on the total transaction volume in 2023, the company holds a 2.4% market share in the online household maintenance industry in China. Under its prestigious reputation, Woodpecker has also received significant attention from capital markets - having received multiple rounds of investments since its establishment, with the involvement of many prominent investors, including the founders of 58.com, Yao Jinbo, and Xiaomi Corporation, Lei Jun. However, even though positioned at the top of the industry, concerns regarding the fundamentals of Woodpecker have surfaced gradually with its listing actions. High business growth, fluctuating profitability Woodpecker offers a convenient one-stop solution for various household repair needs, covering over 300 major categories of home appliances and home facilities, including appliance repair, appliance cleaning, appliance installation, plumbing repair, lock replacement, waterproofing, wall renovation, kitchen and bathroom renovation, tile and floor repair, door and window maintenance, furniture repair, as well as electronic products such as smartphones and laptops. The scale effect is evident in Woodpecker, with its business steadily expanding and trading volume increasing consistently. According to the prospectus, Woodpecker's business has steadily grown in recent years, with the platform's total transaction volume increasing from 9.9 billion yuan in 2021 to 14.6 billion yuan in 2022, further rising to 24.8 billion yuan in 2023, with a compound annual growth rate of 58.5% from 2021 to 2023. For the six months ending June 30, 2024, the platform's total transaction volume continued to increase to 1.57 billion yuan. At the same time, the company's user base has also significantly expanded. The number of trading consumers served by Woodpecker increased from about 4 million in 2021 to about 5.5 million in 2022, further rising to 9 million in 2023. By June 30, 2024, the company's trading consumers further increased to 6.1 million. With the steady expansion of its business scale, Woodpecker's revenue has entered a high-growth channel. According to the prospectus, the company's revenue for 2021, 2022, and 2023 reached 401 million yuan, 595 million yuan, and 1 billion yuan respectively, with year-on-year growth rates of 48.1% and 70% for the last two years. By June 30, 2024, the company's revenue further increased to 623 million yuan, with a year-on-year growth of 45.1%. However, despite high business growth, Woodpecker has not achieved "high profitability", as the company's overall profitability remains unstable. In 2021, 2022, and 2023, Woodpecker achieved net profits of 33.4 million yuan, 6.2 million yuan, and 4.89 million yuan respectively, showing a fluctuating performance. For the first half of 2024, the company's net profit was 3.89 million yuan, a decrease of 6.3% compared to the same period in 2023, mainly due to a significant increase in sales and marketing expenses. It is worth noting that high marketing expenses have become a major factor eroding Woodpecker's net profit and have become a reality that the company faces. According to the prospectus, the company's sales and marketing expenses for 2021, 2022, 2023, and the first half of 2024 were 178 million yuan, 291 million yuan, 494 million yuan, and 299 million yuan respectively, accounting for 44.3%, 48.9%, 48.9%, and 44-48% of total revenue. The high proportion of sales and marketing expenses highlights the fact that under Woodpecker's "asset-light operation model", customer acquisition costs are not "light". Woodpecker Maintenance primarily adopts an asset-light operational model, where platform engineers are not company employees but have a business cooperation relationship with the company. Therefore, significant marketing investment is essential to obtain users and engineer resources to maintain the operation of the platform. From the above, it is clear that even as a leading enterprise in the home repair platform industry, Woodpecker still needs to overhaul its fundamentals. Industry "small and beautiful", but competition remains a challenge In recent years, as the Chinese housing market has become saturated and consumer demand for quality services has increased, the presence of a large number of old houses has led to a continuous increase in demand for home repairs. According to Input Advisory's data, in 2023, the total transaction volume of China's home repair market was 714.9 billion yuan, and it is expected to reach 931.8 billion yuan by 2027, with a compound annual growth rate of 6.8% from 2023 to 2027. Against this backdrop of demand, the rapid development of internet infrastructure has further accelerated the penetration of the home repair industry online - consumers now prefer to place service orders or book services through online channels or search engines. This provides a fertile "growth soil" for the race in which Woodpecker operates. According to Input Advisory's data, the online home repair service penetration rate (calculated by dividing the market size of service orders placed through online channels or search engines by the total size of the home repair market) increased from 3.2% in 2018 to 14.5% in 2023, and is expected to rise to 25.4% by 2027. However, it is important to note that the industry's rapid development has attracted many companies to enter, thereby intensifying industry competition. Specifically, the potential of the home repair market has attracted many companies to enter, leading to increasingly fierce competition among peers. In addition to traditional repair companies and individual craftsmen, some internet platforms are also entering the market.Get involved in the field of home repairs, such as Wanshifu, LubanToHome, etc., they compete with ZhumuNiao in terms of service mode, pricing strategy, etc. In addition, some innovative model and strong financial strength newcomers may challenge the market position of ZhumuNiao.However, in such a development background where "opportunities and challenges coexist", Zhumu, previously triggered a certain "trust crisis" due to service quality issues. It is understood that in the Internet age, information spreads rapidly. Once there are problems with service quality or negative events, it is easy to spread on the Internet, causing adverse effects on the brand image. Zhumu has previously been exposed by the media for issues such as "overhaul for minor problems" and irregular charges. These negative reports may reduce users' trust in the Zhumu platform. In summary, with "internal" profit fluctuations, high marketing expenses and other "minor issues" to be addressed, and "external" competitive pressures intensifying, trust levels decreasing, and other risks to overcome, investors may need to pay extra attention to whether Zhumu can still achieve high growth in the future. As for the "barriers" to the company's future growth, Zhumu is clearly aware. The company mentioned in its prospectus that it plans to use funds raised from the IPO to diversify its service categories, expand the geographical areas of new services, upgrade its digital platform, and enhance brand exposure and awareness. Can Zhumu mend its fundamentals in the future? Let's wait and see.