LEPIN to Establish with RMB 50 Million New Factory

LEPIN, which is the most controversial name among the community of building blocks and bricks sets’ fans had confirmed to establish a new factory that cost RMB 50 Million (USD 7 Million). The factory construction will start in March 2019 and be scheduled to complete in April. Following findings and analysis are based on publicly available sources in China.

LEPIN’s parent company MZ SMART 广东美致智教科技股份有限公司, formerly known as Meizhi Model registered a new subsidiary 汕头市美致模型有限公司第三分公司 (Shantou Meizhi Model Ptd Ltd No. 3 Subsidiary) on July 18th 2018.

The new LEPIN factory under the No. 3 Subsidiary could be intended as expansion or for LEPIN line, with the main purpose to increase the productivity, and just in case the No. 2 was forced to close down due to unforeseen legal troubles.

Meanwhile, the sister brand of LEPIN, Xingbao Block belongs to 汕头市鹏瑞电子科技有限公司(Shantou Peng Rui Electronic) which had a separate manufacturing facility. Peng Rui is wholly own entity by MZ SMART that has a very legitimate right by collaborating with famous MOC designers. Also, this LEPIN and Xingbao brand also hold a modular building contest annually to seek for the most creative building blocks sets and bring them to all the bricks toys fans. Additionally, the designers have the chance to bring great rewards and more importantly, that is the opportunity to show their talents and imagination.

No. 3 had filed an environmental assessment report with Shantou County Environmental Department and below are snapshot from the report.

Despite the controversy, LEPIN’s business is very favorable. When LEPIN is building a new factory, LEGO is experiencing a serious decline in revenue. That means cutting 1,400 jobs, or eight percent of its global workforce. One of the reasons may be that users have considered the issue of price commensurate with quality. Both the LEGO and LEPIN building blocks and bricks sets are made of pure ABS plastic with no harmful substance and all sets are safe for children and also durable even under physical effect, durable color over time and temperature. But with the same building blocks and bricks set, the price of LEPIN is only 1/2, even 1/3 of LEGO while the quality is relatively equivalent.

Factory Background
The new factory had a land size of 4666.7m2, with single-story building occupying 3000m2. It is going to employ 80 workers, with 60 of them living in factory dormitory.
Operating hours: 24 hours in three shift of 8 hours, 300 days a year.

Production Capacities
No. 3 factory could process 3000 tonnes of plastic material per year.
Breakdown of Material:
ABS plastic: 2700 MT per year
POM (Acetal): 150 MT per year
Nylon: 150 MT per year
Packaging: 3 MT per year

Production Facilities
No. of Injection molding machines
90T x 15 sets
120T x 35 sets
150T x 50 sets
280T-380T x 2 sets
Total numbers of injection molding machines, 102 sets.
**T refers to the capacities of the molding machine in tonnes. 90T means 90 tonnes

Given the numbers of plastic mold injection machines, the production line is intended for interlocking bricks type of toys. The absence of soldering wire facility in No. 3 factory restricted the mean in making electronic toys. On the other hand, No. 1 Subsidiary of MZ SMART which makes remote control toys had the operation that employed 550 workers and processing capacity of 3200 MT per year of ABS plastic and 2 MT per year of soldering wires.

Losing court case to LEGO made no difference as LEPIN continue to sell counterfeit LEGO products. Based on our estimation, the gross margin for LEPIN could be over 50% given it didn’t have to pay licensing fees. We get the ballpark figure by referencing Banbao, which had a gross margin of 34.47% for its brick toy line. Banbao is China only publicly listed manufacturer of interlocking brick toys on Shanghai Stock Exchange, who acquired IP of Peppa Pig, Snuppy etc.

In summary, LEPIN continues to make the cheap knock-off product and expanding in response to ever increase MOC toy lines. The new factory would serve as an increase in productivity to meet the needs is rising of the customers.

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