LEPIN to Expand with RMB 50 Million New Factory

LEPIN, which is the most hated name among LEGO fans had commissioned a new factory that cost RMB 50 Million (USD 7 Million). The factory construction will start in March 2019 and schedule 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 18 2018. Another subsidiary 汕头市美致模型有限公司第二分公司 (Shantou Meizhi Model Ptd Ltd No. 2 Subsidiary) was sued by The LEGO Group and ordered to pay RMB 4.5 million. The No. 2 was the subsidiary that made counterfeit LEGO toys under LEPIN brand.

The new RMB 50 million factory under the No. 3 Subsidiary could be intended as expansion or for LEPIN line, 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 separate manufacturing facility. Peng Rui is wholly own entity by MZ SMART that plays legitimate game by collaborating with famous LEGO MOC designers.

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

Factory Background
Location: 23°27’15.00″N 116°47’4.86″E
The new factory had 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 make remote control toys had 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 ball park figure by referencing Banbao, which had 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 LEGO counterfeit and expanding in response to ever increase LEGO toy lines. The new factory would serve as back up production in case LEGO managed to shut the main factory down.

About MZ Smart
Formerly known as MZ Model.
Registered Capital: RMB 80 million (USD 11.78 million)
Beneficiary: Li Hai Peng (李海鹏), 97% shares ownership.

Official Brands
Meizhi Model, Spring Flower, Xingbao Block, Sparkler.

Side Line
Making counterfeit LEGO products under LEPIN and upcoming Nuogao brands. Example below:

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You won’t find LEPIN brand mentioned in MZ SMART website and public channels. There are rumors MZ SMART is applying for public listing, and LEPIN would be dirty laundry that it tries to hide away.

Bonus photos: Owner of MZ SMART, Li Hai Peng or Mr. LEPIN.