Event: Liren Technology published its 2022 annual report and 2023 quarterly report. In 2022, revenue was achieved of 660 million yuan, YoY +0.3%, and net profit returned to mother was 0.5 million yuan, YoY -21.8%; after conversion, Q4 achieved revenue of 190 million yuan in a single quarter, YoY -11.6%, achieving net profit of 0.1 million yuan to the mother, and YoY -65.5%. 2023Q1 achieved revenue of 150 million yuan in a single quarter, YoY -17.8%, net profit of 0.2 billion yuan to the mother, and YoY -3.3%. We believe that the company continues to expand various categories of small kitchen appliances and kitchen utensils. Douyin channel revenue is growing rapidly, and the company's revenue growth rate is expected to continue to rise.

Q1 Douyin channel revenue grew rapidly: Liren Technology's 202Q4 and 2023Q1 revenue was YoY -11.6%/-17.8% respectively, mainly due to the impact of the Q4 epidemic, the company's logistics delivery and offline channel sales were affected. Furthermore, the revenue growth rate of the overall air fryer market in 2022H2 began to decline, and the company's relatively high share of air fryer revenue also dragged down the revenue growth in 2022Q4 and 2023Q1. According to Jiuqian's data, in 2023Q1, the company's online sales of Liren Electric Pancakes/Air Fryers/Multipurpose Pans were YoY +20%/-76%/+18% respectively. Sales of major categories other than air fryers increased rapidly. According to Jiuqian data, the company's 202Q4/2023Q1 online channels were YoY -10.4%/-32.4% respectively, and Douyin's channel sales were YoY +211%/+61% respectively. Douyin's channel revenue growth rate continued to soar, higher than the company's overall online growth rate. We judge that due to the resumption of consumer offline travel, the company's offline revenue in 2023Q1 still increased year-on-year. As the company launches more categories of new products, the subsequent revenue growth rate is expected to increase.

Q1 Single-quarter gross margin declined slightly year-on-year: the company's gross margin of 202Q4/2023Q1 was +1.5pct/-2.9 pct year-on-year. The company's Q1 gross margin declined year-on-year, mainly because the company further optimized its inventory in line with this year's new product launch plan, and the average sales price declined. The company's gross margin is expected to increase further with the launch of new products.

Q1 Profitability increased year-on-year: the company's net interest rate of 202Q4/2023Q1 was -8.3 pct/+1.7 pct, respectively. The company's Q1 profitability improved year-on-year, mainly because when the profitability of the company's main business remained stable in Q1, deposit interest increased due to abundant cash. Additionally, the company received large amounts of VAT refunds during the company's period. The decline in the company's net interest rate in Q4 was mainly due to the increase in the company's Q4 preparations for individual accounts of bad debts. Excluding the impact of impairment, the company's 2022Q4 net interest rate was +0.5pct year over year.

Q1 Net operating cash flow increased year-on-year in a single quarter: the company's net operating cash flow for the single quarter of 202Q4/2023Q1 was -53 million yuan/28 million yuan year-on-year. Mainly because the company increased its efforts to prepare new products in 2022Q4, and further optimized the upfront inventory in 2023Q1 to speed up repayment.

Investment advice: Liren is a leading company in the small kitchen appliances segment. The electric bakery brand has a long history. The company has increased its investment in the Douyin channel this year, and has actively stocked up a number of new small kitchen appliances. We believe that the company's revenue is expected to continue to grow, driven by the increase in revenue brought by Douyin and new products. We expect the company's EPS to be 0.85/1.03/1.21 yuan from 2023 to 2025. We gave the company a PE valuation of 37x in 2023. The target price was 31.45 yuan/share, giving the buy-A investment rating.

Risk warning: market competition intensifies, raw material prices fluctuate