Performance review
1-3Q21 performance meets our expectations
The company announced 1-3Q21 results: revenue of 1.089 billion yuan, year-on-year + 12.45%; net profit of 78 million yuan, + 4.88%; deduction of non-return net profit of 67 million yuan,-5.90% of the same period last year. The performance is in line with our expectations.
On a quarter-to-quarter basis, Q1/Q2/Q3 revenue increased by 48.2% compared with the same period last year, while net profit at home increased by 23.6%, 3.7% and 2.9% respectively compared with the same period last year.
Development trend
1. Income growth has slowed down. The company's 1-3Q21 revenue increased by 12.45% compared with the same period last year, which increased by 1.6% compared with the same period last year. On the one hand, due to the impact of last year's high base, the export business and e-commerce business grew rapidly under the influence of the epidemic in the same period last year. According to Amoy data, online sales in the fitness equipment industry declined significantly in the third quarter of this year compared with the same period last year. On the other hand, we expect some orders to be delayed due to export sea freight.
2. Affected by the rise in the price of raw materials, profitability has declined slightly. The company's 1-3Q21 gross profit margin decreased by 2.5ppt to 27.4% year-on-year, of which 3Q21 gross profit margin decreased by 3.6ppt to 25.1% compared with the same period last year, which we expect to be mainly affected by factors such as rising prices of upstream raw materials. In terms of period expenses, the company's expense rate during the 1-3Q21 period decreased by 0.4ppt to 17.5% compared with the same period last year, of which the sales / management / finance / R & D expense rate changed from + 0.8ppt/-0.4ppt/-0.9ppt/+0.1ppt to 8.28% to 6.79% 0.15% 2.28% respectively. Affected by the decline in gross profit margin, the company's 1-3Q21 net profit margin fell 0.5ppt to 7.2% year-on-year, of which 3Q21 net profit margin dropped 0.3ppt to 5.6% year-on-year, with a slight decline in profitability.
3. Be optimistic about the development of household fitness equipment and service expansion space of the company. The sports and fitness industry is a sunrise industry supported by the national policy. According to the plan of the State Administration of Sports, the scale of the sports industry will grow from 9.2% CAGR to 5 trillion yuan in the next five years. We are optimistic that Shuhua will achieve steady growth under the double dividend of industry growth and market share increase. 1) Household equipment: home fitness is rising rapidly because of its convenience and economy. The company actively arranges household fitness equipment channels, and has hundreds of brand stores offline. Online in Tmall, JD.com, Vipshop Holdings Limited and other e-commerce platforms have layout, sales are in the forefront of the industry, we are optimistic about the company's online and offline diversified channels for the common development of household equipment growth space. 2) Service: the company actively promotes the intelligence of fitness equipment and launches corresponding services for different fitness scenarios. The number of APP members of Shuhua Sports is growing rapidly. We are optimistic that the company will increase consumer stickiness and broaden business boundaries through services.
Profit forecast and valuation
Based on the higher-than-expected impact of the rise in raw material prices, we have lowered our EPS9.9%/6.9% by 2021 / 2022 to 0.34 yuan / 0.45 yuan respectively. The current share price corresponds to 61.4 times 2022 / 45.8 times earnings. Considering that the price of raw materials is a short-term factor, the industry rating and 25.00 yuan list price will be maintained, corresponding to a price-to-earnings ratio of 51.4 times earnings in 2022, which is 20.5% higher than the current stock price.
Risk
The price of raw materials has risen sharply; competition in the industry has intensified.