New stock preview | Zhongxin Home Furnishings: Profits on a roller coaster, gross margins declining for consecutive years, can "Vietnam production capacity" become a solution?

Recently, the hidden champion in the domestic PVC flooring manufacturing sector, Zhongxin Home Furnishings, formally submitted its application for listing on the Hong Kong Stock Exchange, attracting market attention. This company, which has been established for nearly twenty years, has become another typical case of Chinese manufacturing going global, thanks to its leading position in the SPC (Stone Plastic Composite) flooring sector and highly internationalized business layout. However, behind its impressive export rankings and market share, there are multiple risks such as drastic profit fluctuations, market concentration, and continuous narrowing of profit margins. Hidden champion in the sector Profit roller coaster and continuous margin pressure According to the prospectus, Zhongxin Home Furnishings is an export manufacturer specializing in the design, development, production, and sales of PVC flooring products. According to Frost & Sullivan's report on global PVC flooring sales area by 2024, Zhongxin Home Furnishings ranks eighth among the many Chinese export manufacturers in China, with a market share of approximately 0.61%. While this number may seem small, it is enough to place it in the forefront of the industry, reflecting the highly competitive nature of the PVC flooring export market. What truly sets Zhongxin Home Furnishings apart is its performance in the SPC flooring segment. SPC flooring, as a new type of environmentally friendly flooring primarily made of limestone powder and polyvinyl chloride, has been rapidly growing in demand globally, especially in the European and American regions. It is in this high-growth segment that Zhongxin Home Furnishings leads Chinese export manufacturers with a market share of 1.02%, establishing its position as the "segment leader." Years of industry experience have allowed the company to accumulate rich product development and production technology. Its products are widely used in residential, commercial, and industrial spaces, with customers spanning globally, especially in developed markets such as North America and Europe. The financial data disclosed in the prospectus clearly outlines Zhongxin Home Furnishings' fluctuating operating trajectory in recent years: its net profit has fluctuated dramatically. In 2023, the company recorded a net profit of approximately 125 million RMB, a decent performance. However, in 2024, net profit plummeted to 52.7 million RMB, a staggering 57.9% year-on-year decline, resembling a "roller coaster." In 2025, the situation improved, with a net profit of 74.1 million RMB for the first three quarters ending on September 30. The drastic profit decline in 2024 was mainly attributed to a decline in revenue, while the expansion of production capacity led to fixed costs such as depreciation and labor expenses, eroding profit margins. The rebound in 2025 was due to the scale effect brought by the utilization of the new production base in Vietnam and the recovery of market order quantity. More concerning is the continuous downward trend in gross profit margin. The company's gross profit margin was 26.0% in 2023, decreasing by 3.7 percentage points to 22.3% in 2024 and further declining to 21.3% in the first three quarters of 2025. This represents a cumulative decrease of 4.7 percentage points over three years. The continuous contraction of gross profit margin is the result of multiple pressures. On the cost side, the rising market prices of main raw materials such as polyvinyl chloride (PVC) and limestone powder directly increase production costs. On the price side, the increasingly fierce competition in the global PVC flooring market puts downward pressure on average selling prices in order to maintain market share, squeezing profit margins. This profit model reveals the dilemma that export manufacturing enterprises in the industry are facing: with limited bargaining power in the industrial chain, it is difficult to fully transfer the upstream cost increases to downstream customers, while needing to exchange market share with prices in a competitive market, making profit margins susceptible to compression. Internationalization and production layout: strategic choices under the double-edged sword To cope with changes in the trade environment and seek cost optimization, Zhongxin Home Furnishings has implemented a dual production base strategy of "China + Vietnam." The production base in Changzhou, China, is its traditional headquarters. The Vietnam production base was officially put into operation in July 2023, with a planned annual production capacity of up to 24.1 million square meters. The strategic significance of the Vietnam base is significant: first, it avoids trade barriers. In recent years, major markets such as the United States have imposed tariffs on some goods originating from China. By transferring production capacity to Vietnam, the company can effectively avoid such trade risks and maintain stability and price competitiveness in supplying American customers. Second, cost advantages: Vietnam may have certain comparative advantages in terms of labor, land, and taxes, helping to reduce long-term operating costs. Third, proximity to markets: optimizing the global supply chain layout and improving logistics efficiency. This layout is directly reflected in its revenue structure. The company's revenue shows a highly internationalized and even singular characteristic: from 2023 to the first three quarters of 2025, overseas revenue has climbed from 96.0% to 99.4%, with almost all of it depending on exports. Among them, the revenue contribution from the US market accounted for 79.6%, 68.5%, and 81.2%, respectively. Although the proportion decreased in 2024, the position of the US market as the "absolute main force" remains unshakable. While this strategy deeply tied to a single market enjoys the benefits of market growth, it also brings significant risks: changes in the US real estate market sentiment, shifts in consumer preferences, sudden adjustments in import policies (such as anti-dumping and countervailing investigations), etc., these factors could potentially have a major impact on the company's operations. Accompanying the high market concentration is extremely high customer concentration. Zhongxin Home Furnishings' performance is heavily dependent on a few large customers. During the reporting period, the revenue contribution from the top five customers accounted for 80.5%, 73.1%, and 71.7%, respectively. While the proportion is slowly decreasing, it remains high. Particularly noteworthy is its largest customer, MSI in the US, which contributed 63.3% of the company's total revenue in 2023, dropped to 45.3% in 2024 but rebounded to 53.9% in the first three quarters of 2025. This means that the company's fate is closely linked to MSI's purchasing decisions. The prospectus mentions that the management team will undoubtedly consider "expanding the customer base and reducing concentration" as one of the future strategies, but this process is easier said than done and requires time and resources. As a leader in exporting SPC flooring, Zhongxin Home Furnishings, with nearly two decades of experience and a keen international production layout (China + Vietnam), has gained a favorable position in intense market competition. However, the business model overly reliant on a single market (the US) and super-large customers (such as MSI) resembles a hanging "Sword of Damocles," making the company's performance highly vulnerable to external environmental fluctuations, as evidenced by the drastic profit decline in 2024. Furthermore, the continuous decline in gross profit margin reveals the cost transmission dilemma and intense price competition pressure faced within the industry chain. This IPO undoubtedly marks a crucial leap for Zhongxin Home Furnishings seeking breakthroughs. The raised funds will bolster its expansion of production capacity, strengthening research and development, and optimizing operations. However, what the capital market scrutinizes is not only past market share and scale but also future growth potential and resilience to risks.