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Introducing Morimatsu International Holdings (HKEX: 2155)

In this article, we introduce Morimatsu International Holdings (森松国际控股)(HKEX: 2155) (henceforth "Morimatsu International"), a company primarily engaged in the design, manufacture, installation, operation, and maintenance of various industrial pressure equipment used for chemical reactions, biological reactions, and polymerization. Morimatsu International's controlling shareholder is Morimatsu Industry (Japanese: 森松工業株式会社), a diversified multinational company originally founded in Japan in 1964, which specializes in delivering core equipment, process systems, and digital intelligent engineering solutions to clients across the globe.


In 2019, Morimatsu International was the fourth largest pressure equipment manufacturer and provider of integrated pressure equipment solutions in China according to the company's prospectus. During 2017 to 2020, Morimatsu International exported products to more than 45 different countries.

 

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Corporate History

The predecessor of Morimatsu International can be traced to the founding of Shanghai Morimatsu Pressure Vessel (上海森松制药设备工程) in 1990. Initially, Shanghai Morimatsu Pressure Vessel focused on manufacturing traditional pressure equipment for sale to Chinese customers.


Note: over the course of what is now Morimatsu International's 30 plus years of history, the company carried out its operations through various related corporate entities which were ultimately consolidated under Morimatsu International Holdings when the holding company was formed in 2019. For the sake of simplicity, we refer to the various related corporate entities as just "Morimatsu International" in this section. In the remainder of this article, "Morimatsu International" refers to Morimatsu International Holdings, the listed entity that is the subject of this article.


In 2002, Morimatsu International took on its first overseas project by exporting traditional pressure equipment to Germany.


In 2005, Morimatsu International began offering modular pressure equipment.


In 2007, Morimatsu International completed its first modular factory project in Spain.


Note: a modular factory project refers to the building of factory equipment and factory room structures in the form of modules so that they can be easily shipped and assembled to form a fully functional factory at the end destination


In 2019, Morimatsu International Holdings (森松国际控股) was established in Hong Kong as a holding company comprising of various Morimatsu businesses.


In 2021, Morimatsu International Holdings went public on the Hong Kong Stock Exchange (HKEX: 0255).


Over Morimatsu International's three decades of business, the company expanded its target markets to serve a broad range of downstream industries, including the chemical, personal care chemical, pharmaceutical, mining and metallurgical, oil and gas, and electronic chemical industries.


Business Overview

In this section, we provide an overview of Morimatsu International's operating segments, client industries covered, and geographical regions covered.


Operating Segments


Morimatsu International has two operating segments: sales of products and service.


Sales of products include the sales of traditional pressure equipment (i.e. reactors, heat exchangers, tanks, and towers) as well as modular pressure equipment.


Service includes pressure equipment design, validation, and maintenance services.



Client Industries


The company offers products and services to a wide range of industry customers, with the following industry segment classification:


  • Chemical

  • Pharmaceutical and Biopharmaceutical

  • Family Care (previously Personal Care Chemical)

  • Raw Materials of Power Battery (previously Mining and Metallurgical) - including metallic ores, lithium battery raw materials, and intermediate chemical raw materials

  • Oil and Gas

  • Electronic Chemicals - including the production of photovolatic raw materials and high-purity chemical reagents

  • Others



Geographical Regions


Morimatsu International is active across the globe, with the following regional classifications:

  • Mainland China

  • North America

  • Asia (excluding Mainland China)

  • Europe

  • Africa

  • Others


Prior to 2021, Africa was not a distinct segment and instead revenue from the region was classified under Others. In 2021 and 2022, Others revenue primarily refers to revenue generated in South America and Oceania.


Financial Overview

We turn to a financial overview of Morimatsu International.


Morimatsu International Is Still In A Rapid Growth Stage With Rising Profitability

Morimatsu International's total revenue increased 4.7-fold from RMB1.57 billion in 2017 to RMB7.36 billion in 2023. Over the same time period, the company's gross profit increased 7.3X from RMB283 million to RMB2,056 million, operating profit went up 34.7X from RMB29 million to RMB1,006 million, and net income increased 56.2X from RMB15 million to RMB843 million.


In 2023, Morimatsu International reported total revenue amounting to RMB7.36 billion, a gross profit of RMB2.06 billion, operating profit of RMB1.01 billion, and net income of RMB843 million.


Morimatsu International Total Revenue and Profit
Raw Data Sources: Company Annual Reports


The rapid rises in profit relative to total revenue are reflected by correspondingly significant increases in profit margins over the same time period, with gross profit margin increasing from 18.1% to 27.9%, operating profit margin increasing from 1.8% to 13.7%, and net profit margin increasing from 0.9% to 11.5%.



Morimatsu International Profit Margins
Raw Data Sources: Company Annual Reports


Almost All of Morimatsu International's Revenue Are Generated From Sales of Products

Between 97% to 99% of Morimatsu International's revenue is generated from the Sales of Products segment each year, while only 1% to 3% of revenue are generated from the Service segment.


Morimatsu International Revenue Breakdown By Operating Segment
Raw Data Sources: Company Annual Reports

Morimatsu International's Industry Revenue Mix Is Diverse And Dynamically Changing

We look at a breakdown of Morimatsu International's total revenue based on customers' end application industries. As shown below, we see that Morimatsu International is reliant on a number of different industries for its revenue and the mix of industry weights is dynamically changing.


In 2017, Family Care accounted for 32.6% of revenue, followed by Chemical at 30.6%, Pharmaceutical and Biopharmaceutical at 14.3%, Oil and Gas at 13.9%, Electronic Chemical at 5.9%, Others at 2.6%, and Raw Materials of Power Battery at 0.1%.


From 2017 to 2023, revenue from Family Care declined significantly both in raw monetary terms and as a percentage of total revenue, while Pharmaceutical and Biopharmaceutical, Raw Materials of Power Battery, and Electronic Chemical generally increased in importance as revenue contributors. In contrast, revenue from Chemical increased in raw monetary terms but fluctuated in relative percentage terms, while revenue from Oil and Gas fluctuated in both raw monetary terms and relative percentage terms.


In 2023, Pharmaceutical and Biopharmaceutical accounted for 30.3% of total revenue, followed by Chemical at 23.1%, Raw Materials of Power Battery at 15.5%, Oil and Gas at 13.2%, Electronic Chemical at 10.5%, Family Care at 5.1%, and Others at 2.3%.




Morimatsu International Revenue Breakdown By End Application
Raw Data Sources: Company Annual Reports


Morimatsu International Revenue Breakdown By End Application (Percentage)
Raw Data Sources: Company Annual Reports

Note: individual segment revenue numbers may not exactly add up to total revenue and percentages may not add up to exactly 100% due to rounding



Morimatsu International's Geographical Revenue Mix Is Diverse With No Consistent Trend

We turn to a geographical breakdown of Morimatsu International's revenue. In raw monetary terms, revenue generated in Mainland China generally increased over the past seven years, while revenue from North America declined from 2017 to 2021 before making a rebound in 2022 and 2023. Revenue from Asia (excluding Mainland China) fluctuated from 2017 to 2021 before growing rapidly in 2022 and 2023, whereas revenue from Europe fluctuated throughout the entire sample period. During the three years when Africa was reported as a distinct geographical segment, revenue from the region increased significantly from 2021 to 2022 and then halved in 2023.


In relative percentage terms as a proportion of total revenue, there are no clear or consistent regional trends from 2017 to 2023.


In 2023, Mainland China accounted for 52.8% of total revenue, followed by Asia (excluding Mainland China) at 24.8% of total revenue, North America at 11.7%, Africa at 4.6%, Europe at 3.3%, and Others at 2.8%.



Morimatsu International Revenue Breakdown By Region
Raw Data Sources: Company Annual Reports (click image to enlarge)

Note: individual segment revenue numbers may not exactly add up to total revenue and percentages may not add up to exactly 100% due to rounding


The Future of Morimatsu International

We conclude this article with a discussion of management's future strategies for Morimatsu International. According to management, there are three key goals of client market scope expansion, overseas expansion, and expanding the company's range of offerings to become more than a traditional equipment manufacturer.


Client Market Scope Expansion

To pursue "high quality and sustainable growth" and avoid becoming too reliant on a particular sector or client, management is continuously diversifying the company's development and investment across various industries. New client markets which Morimatsu International entered into in 2023 include green energy, sustainable food production, new energy materials, and high-end wet electronic chemicals. Additionally, management states that the company is actively pursuing growth in the green/low-carbon/sustainable energy and innovative new materials markets.


Overseas Expansion

To counteract a downturn in Mainland China demand for certain industries, management has been and is continuing to expand to overseas markets. In the company's 2023 report, management also specifically mentions that the growth in orders and revenue in the pharmaceutical and biopharmaceutical segment is largely driven by overseas demand.


Becoming More Than Just A Manufacturer

Morimatsu also plans to evolve from being a traditional manufacturer that focuses only on products to a more integrated business that encompasses "product + service" and "technology + product + service". Management aims to do so by providing business features such as supplementary on-site services and technology transfers.


Note: management does not elaborate on the term "technology transfers" , but we think this could perhaps refer to the licensing of certain Morimatsu patented technologies to clients so that the company's clients can use some of these technologies in their own manufacturing processes.

 

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