Event

On October 26, the company released a three-quarter report that the operating income in the first three quarters of 2022 was 2.396 billion yuan, down 19.47% from the same period last year; the net profit was 138 million yuan, an increase of 194.04% over the same period last year, deducting 104 million yuan from non-net profit, an increase of 160.11% over the same period last year.

Brief comment

1. Veterans of the industry travel light, their profitability increases quarter by quarter, and the inflection point of operation appears.

The operating income of 22Q3 Company was 822 million yuan, down 33.72% from the same period last year; the net profit from home was 68.296 million yuan, up 352.13% from the same period last year, while the non-net profit was 56.2099 million yuan, up 262.46% from the same period last year. At the end of 2021, the company spun off the metal structure business subsidiaries Fu Chengda and Oppengda. If the revenue data of Fu Chengda, which was included in the consolidated statement in the same period last year, are excluded, the main business income in the first three quarters of 2022 is basically the same as the same period in the previous year. The company's profitability continued to improve, Q3 gross profit margin of 21.50%, year-on-year increase of 14.21pct, month-on-month increase of 2pct, five consecutive quarters of gross profit margin increase; Q3 net profit margin of 7.77%, year-on-year increase of 10.66pct, month-on-month increase of 2.61pct, three consecutive quarters of net profit increase.

By the end of the third quarter, the company's asset-liability ratio was 41.02%, which continued to decline. The company focuses on the main business, light, management inflection point appears.

2. The company's products cover electroacoustics, health, wear, door locks, etc., with a high proportion of overseas income.

The company is a vertical integration solution provider in the field of intelligent hardware, and its main products include electroacoustic products, intelligent wearable products, intelligent door locks, health appliances and so on.

In the field of electroacoustic products, the company adopts the business model of the combination of ODM and OBM. The main products are divided into wireless Bluetooth speakers, intelligent voice speakers, Soundbar, portable energy storage speakers, etc. The main customers include WalMart, Yandex, Amazon, Logitech, Creative, BABA and other well-known enterprises at home and abroad. Tmall, who cooperates with BABA, ranks first in China's intelligent speaker market for many years. The company's smart speakers in cooperation with Yandex topped the list in the Russian market. The main product forms of health appliances are divided into hair straighteners, curlers, hair dryers, hair dryers, etc., the main customers are Farouk System, HOT, Philips, GHD, TESCOM and other well-known enterprises in the industry. According to the statistics of the General Administration of Customs of China, the company's export volume of hairdressing appliances has been among the best. The main products of smart wearable devices are divided into smart bracelet, smartwatch, motion sensor, ping an clock and so on. The main customers include Huawei, Philips, Decathlon, Wahoo, OTF and so on. In the field of intelligent door locks, the company has laid out intelligent locks since 2018, invested in holding "Romans" independent brand, and provided customers with high-end high-quality intelligent lock products and systematic solutions and services based on JDM and ODM mode. The company's overseas customers accounted for a high proportion of revenue, 2022H1 overseas revenue accounted for 71.57%, of which the United States accounted for 35.42%, Europe accounted for 27.08%.

3. The company actively arranges the energy storage business, and the channel advantage under the sea is expected to help.

Thanks to the decline in the cost of lithium batteries and the improvement of inverter technology, as well as the desire for outdoor travel released by the epidemic, portable energy storage products are in great demand in recent years. Portable energy storage electro-acoustic products with wireless audio technology on the basis of energy storage ushered in a broader market prospect. The company strengthens its cooperation with high-quality customers and launches portable energy storage electroacoustic products. At present, the company has completed the mass production of 200W energy storage products, and the portable energy storage electroacoustic products have been put on the market. In addition, the company actively cooperates with partners in the new energy industry. in September 2022, the company signed a Strategic Cooperation Framework Agreement with Shenzhen Shouhang New Energy Co., Ltd. the company relies on its experience and advantages in supply chain management, product manufacturing, cost reduction, quality improvement and sales channels, and gradually enters the new energy field with the help of the first Airlines new energy products and technology platform. It is arranged in the fields of photovoltaic and home storage inverter, independent research and development of mobile energy storage products, photovoltaic and energy storage power station development and so on.

4. the company still has great development prospects in the fields of electroacoustics, health, wear and other industries, and the company's share buyback shows confidence.

The smart speaker industry has shown good growth in the past few years. For example, sales of smart speakers in Russia increased by more than 70% in the first half of 2022 compared with the same period last year.

According to the IDC report, although shipments of China's smart speakers shrank in 2021 compared with the same period last year, market sales increased by 15% year-on-year under the upgrading of structure and products. After years of industry reshuffle, the style of the smart speaker industry has decreased, the unit price has increased, and the product upgrade brought about by the demand for smart screens has injected new impetus into the industry. Hair straighteners, curlers and other hairdressing appliances are widely used in European and American markets with a long social and party culture, which account for more than 50% of the global retail market. At present, the penetration rate of hair care products in China is low, and there is a large space for market expansion in the future. In the future, the company will continue to cultivate the big markets in Europe and the United States, and focus on breaking through new customers on the basis of serving existing major customers. The company will expand the household market while ploughing the professional market, seize the opportunity of the rise of domestic appearance economy, and actively promote its own brand "music program". China Information and Communication Institute predicts that by 2024, global production of wearable devices will reach 609 million units, while China will produce 344 million units, a growth rate of more than 15 per cent. On the basis of maintaining growth, with the gradual release of market demand, users' consumption of wearable products is returning to rationality, in which watches and medical and health-grade wearable products have become the main driving force of the market, and their share is increasing. On the basis of stabilizing the bracelet market, the company will strengthen the research and development of smartwatches and health medical-grade wearable devices, and launch competitive products to the market as soon as possible. On the other hand, it will actively develop other emerging markets and emerging wearable devices, such as VR, anti-snoring devices, etc., to expand and enrich the application scene.

According to the company announcement, the company uses its own funds to buy back the company's shares through centralized bidding, which is used to implement the equity incentive plan or employee stock ownership plan. The repurchase share price does not exceed 6.5 yuan per share, the repurchase fund amount is not less than 100 million yuan (inclusive) and not more than 200 million yuan, and the repurchase implementation period is changed from August 30, 2021 to February 28, 2023. The company's share buyback demonstrates confidence in future development.

5. We recommend keeping an eye on the company, covering it for the first time and giving it a "buy" rating.

The company focuses on the existing advantageous industries, continues to develop new categories, and increases the development of high-quality customer groups. It is suggested that we should continue to pay attention to the signs of marginal improvement in the company's performance.

We predict that the company's income from 2022 to 2024 will be 3.462 billion yuan, 4.279 billion yuan and 5.133 billion yuan respectively, and the net profit will be 194 million yuan, 348 million yuan and 502 million yuan respectively. The current market capitalization corresponding to PE is 36x, 20x and 14x, covering for the first time and giving a "buy" rating.

6. Risk hint: the market demand is not up to expectations, the current international geopolitical conflicts and the uncertainty of the COVID-19 epidemic change, the economic development is facing a complex and grim situation, and the recovery of market demand is facing less-than-expected risks; the risk of price and gross profit margin falling as a result of intensified market competition The risk that the profit forecast hypothesis is not valid. Based on the demand in the downstream application areas of the company, the profit forecast forecasts the sales quantity of the company's products, and it is possible that the actual demand quantity is less than the expected quantity, resulting in a decline in the company's revenue. According to the sensitivity calculation, if the product sales volume decreases by 10%, the company's corresponding income decreases by 9.1%, and the return net profit decreases by about 8.3%.