Product+channels are gaining strength, leading barriers to fitness equipment manufacturing have been established, and for the first time they have covered a “buy” rating

The company is a leading fitness equipment manufacturer in China and the official fitness equipment supplier for the Beijing Olympics. The company's revenue CAGR in 2018-2021 was 8.4%, achieving a steady increase in revenue scale. Affected by the pandemic and declining consumption, 2022Q1-Q3's revenue/performance declined -14.7%/-18.6%, respectively. However, we believe that the company has a rich product matrix, perfect sales channel layout, and stable long-term competitive barriers. We are optimistic that the company will continue to develop steadily. The net profit attributable to the parent in 2022-2024 is estimated to be 100/151/182 million yuan. The corresponding EPS is 0.24/0.37/0.44 yuan respectively. The current stock price corresponds to PE 46.0/30.6/25.4 times PE, covering the “buy” rating for the first time.

Sports equipment industry: domestic and foreign markets are stable, moderate and positive, and increased policy and health awareness drive the development of the industry

In terms of market size, the global sports equipment market is expanding steadily. The global market size is expected to be about 19.4 billion US dollars in 2027; the size of China's fitness equipment industry has achieved steady growth, from 38.8 billion yuan in 2017 to 58.2 billion yuan in 2021. CAGR is 10.7%, and the market has great potential under low penetration. On the industry-driven side, since 2016, there have been frequent incentive policies related to China's sports industry. Combined with the rapid rise in public health awareness in the post-pandemic era in a short period of time, the fitness equipment industry is expected to accelerate expansion under the double advantage.

The product took the lead in achieving full coverage of six major application scenarios, perfect sales channel layout, and accelerated opening of e-commerce channels

Product side: Adhere to multi-dimensional R&D and innovation, and initially establish an all-scenario intelligent fitness system; in 2021, the company collaborated with Huawei to launch a smart treadmill equipped with the Hongmeng System, which once again demonstrated its ultimate product strength. At the same time, the company's products were the first to achieve full coverage of six major application scenarios, including home use, commercial use, and health care. The products support Bluetooth connections of the Huawei Sports and Shuhua Sports apps, and are more intelligent. Channel side: The company has established a more complete sales channel layout. Offline channels are mature, with nearly 1,000 sales and after-sales service outlets, which have basically achieved full coverage in 31 provinces, municipalities, and autonomous regions. The terminal market has reached a wide range, and has gradually penetrated the sinking market. The growth rate of the online channel is impressive. The 2022H1 online channel grew at a year-on-year rate of 116.8%. The company has completed the layout of online stores on platforms such as Tmall, JD, and Douyin. In 2021, the company's sales of spinning bikes and other vehicle products on the JD platform increased 78% year-on-year.

Future outlook: Government-enterprise cooperation may welcome new developments, and product intelligence accelerates the creation of differentiated competition

The company has accumulated more than 20 years of experience in government-enterprise cooperation bidding. The winning projects and amounts ranked first in the country. In 2021-2022, the country frequently issued policies to support the sports industry. We are optimistic that the company will take on the trend of industry policies with strong competitiveness and achieve breakthroughs in government-enterprise cooperation business. At the same time, the company takes “product intelligence” as its long-term development goal, which helps the company build differentiated competitiveness of products and the scope of sales of outreach services.

Risk warning: Terminal demand has declined sharply, industry competition has worsened, and product promotion has fallen short of expectations.