1H20 performance is lower than we expected.

The company announced 1H20 results: revenue of 1.13 billion yuan, down 30.5% from the same period last year; net profit of 144 million yuan, up 79% from the same period last year; deducting non-return net profit of-52 million yuan. Corresponding to 2Q20 income of 661 million yuan, down 13.5% from the same period last year; net profit of 177 million yuan, an increase of 453% over the same period last year; and deducting non-return net profit of-23 million yuan. The poor recovery of the company's revenue led to lower-than-expected results.

The proportion of offline channels is high, and the recovery of income is slow. 1) Hubei subsidiaries were seriously affected by the epidemic in the first quarter, resulting in a large decline in income. The company's revenue did not return to positive growth in the second quarter. The revenue of 1H20 cooking utensils and small household appliances was-28% and-42% respectively compared with the same period last year, mainly because the company's traditional advantage channel was Shang Chao, and the offline channel was still declining due to the impact of e-commerce diversion. 2) the competition in e-commerce channels is fierce, and the share of the company's cooking utensils is surpassed by Jiuyang. According to Amoy data monitoring, the online sales of 1H20 Estelle cookware is only 41% of that of Jiuyang brand cookware. 3) the export business of 1H20 decreased by 36% compared with the same period last year, mainly because the freight was affected by the epidemic and the order was delayed.

Financial analysis: 1) 1H20 gross profit margin year-on-year-3.7ppt, mainly due to the company's increased product promotion efforts, the average price decreased. 2) the expense rate during the 1H20 period is + 9.9ppt compared with the same period last year, which is mainly due to the increase in the proportion of rigid expenditure when the income decreases, and the increase of shutdown cost caused by the epidemic. 3) Land acquisition and storage brought an one-time income of 260 million yuan in the first half of the year. Excluding this effect, 1H20 operating business is still losing money. We estimate that in addition to the continued losses in the robot business, there were also losses in the cooking utensils and home appliances business in the first half of the year. 4) the net cash inflow from 1H20's operating activities is 142 million yuan, and the company's book cash is 458 million yuan, so there is no risk of cash flow for the time being.

Trend of development

In the first half of the year, the company paid more attention to e-commerce channels, set up a new marketing department, and actively adopted new models such as live broadcast. The company had a total of 122 live broadcasts in the first half of the year, and e-commerce sales increased by 88% in the second quarter compared with the same period last year. In the future, the company plans to focus on promoting e-commerce business, and we expect the company's online share to improve.

Profit forecast and valuation

Due to the slow recovery of offline channels due to online channel diversion, we have reduced the 2020 Unix net profit by 16.4% to 233 million CNY / 159 million RMB in 2021. The current share price corresponds to a price-to-earnings ratio of 14.2 times 2021 / 20.8 times earnings. Maintain a neutral rating, consider an increase in sector valuation, and maintain a target price of 9.00 yuan, corresponding to 13.5 times 2020 price-to-earnings ratio and 19.9 times 2021 price-to-earnings ratio, which is 4.7% lower than the current stock price.

Risk.

The risk of market competition and the risk of RMB exchange rate fluctuation.