HomeMarket NewsMicro Cap StocksThe Sweet Success of Zhongmiao: A Juicy Opportunity for Investors

The Sweet Success of Zhongmiao: A Juicy Opportunity for Investors

Actionable Trade Ideas

always free

zhongmiao 0410 01

Zhongmiao’s Strong Profitability in a Sea of Conservative Insurers

Warren Yang

Insurance brokers often languish in the shadows of high-tech companies, lacking the flash and sizzle that attract investors. But when it comes to profitability, Zhongmiao Innovation Technology (Qingdao) Co. Ltd. deserves a spotlight.

While Haier Group’s majority ownership catches the eye, Zhongmiao’s upcoming Hong Kong IPO application is not just about flashy connections. It’s about a business model with fat margins, fueled by a focus on corporate insurance and a lean operational structure.

Amid China’s economic slowdown, Zhongmiao has faced revenue growth challenges. However, its bottom line remains robust, thanks to operational efficiency.

The company’s revenue climbed 17% to 174 million yuan ($24 million) in 2023, a dip from the previous year’s 24% surge. While these numbers may seem modest for a company established in 2017, Zhongmiao’s gross profit margin topping 40% ensures a healthy profit margin of over 20%.

Unlike rivals like Fanhua and Waterdrop, Zhongmiao’s operational expenses are impressively low, underscoring the effectiveness of its streamlined business model that shuns overreliance on investment returns.

Zhongmiao’s Profits and Margins: A Flavorful Mix

Zhongmiao’s operational efficiency is a testament that simplicity can trump complexity. Focusing primarily on corporate insurance sales, the company sidesteps the volatility of consumer insurance markets, reaping handsome returns from long-term policies that companies prefer.

With an average commission rate of nearly 18% for property insurance, Zhongmiao’s profits from corporate sales eclipse those from individual policies. Last year, corporate insurance sales contributed 41% of its revenue, boasting a lush gross profit margin of 66%.

Initially created to serve Haier Group, Zhongmiao has diversified its client base, reducing dependence on its parent company. This strategy not only bolsters margins but also shields the company from vulnerabilities tied to a single customer.

Challenges and the Road Ahead for Zhongmiao

Despite its successes, Zhongmiao is not without risks. Heavy reliance on a few underwriters and potential regulatory hurdles loom as threats that could dent its profitability. Adapting to market competition and ensuring sustained growth will be pivotal for Zhongmiao’s future as a publicly listed entity.

As Zhongmiao sets its sights on the Hong Kong IPO, investors are eyeing its valuation. With a history of profitability, the company’s superior margins may command a premium, hinging on its ability to demonstrate long-term sustainability and future growth prospects.

As the company charts its course in the volatile waters of the insurance industry, investors eagerly await Zhongmiao’s financial performance post-IPO, hungry for a taste of its continued success.

This article is from an unpaid external contributor. It does not represent Benzinga’s reporting and has not been edited for content or accuracy.

Swing Trading Ideas and Market Commentary

Need some new swing ideas? Get free weekly swing ideas and market commentary from Jonathan Bernstein here: Swing Trading.

Explore More

Weekly In-Depth Market Analysis and Actionable Trade Ideas

Get institutional-level analysis and trade ideas to take your trading to the next level, sign up for free and become apart of the community.