Investment suggestion
We upgraded our rating to outperform industries and raised our target price by 38% to 10.46 yuan. The reasons are as follows:
The main business of massage chair has bottomed out, and the valuation is at the bottom of history: 1) the company has experienced many economic cycles since its listing, and the valuation fluctuates greatly. The company's massage chair has high unit price, offline sales, strong optional attributes, and is greatly affected by the epidemic situation and insufficient purchasing power. The company's current valuation is 10x 2023eP/ E and 0.9x 2023eP/B, which is at the bottom of the historical valuation range. 2) since 2022, the recurrence of the epidemic and the obvious slowdown in overseas demand have also had a greater adverse impact on the company. We expect the company to be in the trough of performance in 2022, with revenue and profits declining year-on-year and at the bottom of the cycle.
The business of heating small household appliances has attracted attention, and the return of valuation ushered in catalysis: 1) the European energy crisis led to the demand for distributed photovoltaic, heat pump and heating small household appliances. According to the General Administration of Customs, from January to August 2022, China's heat pump exports were + 62% to US $800 million, and Chinese electric blanket exports to Europe were + 71% to US $50.35 million. 2) Medisana electric blanket under Aojiahua's brand is very popular in Amazon.Com Inc channel in Europe. Magic Mirror monitoring data show that from January to August 2022, the sales of Amazon.Com Inc electric blanket in Europe, Medisana brand ranked fifth, with a market share of 6.5%. 3) We believe that although the company's electric blanket business currently accounts for a low proportion of revenue, it will help to increase market attention and drive valuations back to normal range.
Globalization, diversified layout, company manufacturing, brand foundation is good. 1) Aojiahua used to be the leader of ODM for massage gadgets. From 2005 to 2020, the company's own brand and the total export volume of ODM business ranked first for 16 consecutive years, with the advantages of scale and efficiency. 2) after listing, the company has transformed into an independent brand enterprise by means of M & An and self-construction, forming a multi-brand and global operation pattern, with 11 independent brands throughout Asia, Europe, Africa, Oceania and America. 3) Manufacturing advantages and global brand layout give the company the ability to seize global product opportunities. During the global epidemic in 2020, for example, the company seized the opportunity of the overseas epidemic prevention products market, and the sales of household medical products jumped from 3.16 million in 2019 to 121.31 million in 2020 (+ 3733% compared with the same period last year).
What is the biggest difference between us and the market? Although the company's main business is affected by the economic cycle, the performance is temporarily poor, and the stock price is at a historically low position. However, small heating appliances are concerned by the market, and the company's value in manufacturing and brand is expected to be revalued.
Potential catalysts: rapid growth in demand for electric blankets; downward prices of raw materials and improved profitability.
Profit forecast and valuation
We maintain our profit forecasts for 2022 and 2023. The current share price corresponds to the 2022 18x/10x price-to-earnings ratio of 2023. We upgraded our rating to outperform industries and raised our target price by 38% to 10.46 yuan, corresponding to the price-to-earnings ratio of 24x/14x 2022 to 2023, which has 37% upside compared to the current share price.
Risk
Repeated risk of domestic epidemic; risk of demand fluctuation; risk of rising cost of raw materials.