1H23 performance is in line with our expectations

The company announced 1H23 results: revenue 593 million yuan, year-on-year-4.4%; net profit 43 million yuan, year-on-year-7.7%; deduction of non-return net profit 36 million yuan, + 5.0% year-on-year. The performance is in line with our expectations.

On a quarterly basis, 1Q/2Q23 achieved revenue of 253,340 million yuan respectively, down 8.8% from the same period last year, and realized net profit of 0.14 million yuan and 14.3% respectively compared with the same period last year.

Trend of development

The year-on-year decline in revenue narrowed in the second quarter. The company's 1H23 revenue fell 4.4% year-on-year, demand recovered slowly in the second quarter, and revenue decline narrowed somewhat. Look by product: 1) Indoor equipment: 1H23 revenue is 381 million yuan, down 4.5% from the same period last year, and the recovery of industry demand is slightly lower than expected. 2) Outdoor trail equipment: the revenue of 1H23 is 97 million yuan, an increase of 17.3% over the same period last year. We expect ToG customers to increase their volume quickly. 3) display shelf: 1H23 revenue decreased 19.4% to 101 million yuan compared with the same period last year.

Gross profit margin continues the upward trend. The company's 1H23 gross profit margin increased by 0.9ppt to 30.0% year-on-year, of which 2Q23 gross profit margin increased to 30.2% year-on-year, continuing the improvement trend. We believe that it is mainly due to the decline in raw material prices and the improvement of the company's business structure. Among them, the gross profit margin of indoor equipment, outdoor path equipment and display shelves increased to 31.0% 25.4% 29.7% respectively compared with the same period last year. Due to a decline in other income, such as government subsidies, the 1H23 homing net interest rate fell 0.3ppt to 7.3 per cent compared with the same period last year.

Industry demand needs to recover further. Since 2023, the consumer demand for fitness equipment has gradually recovered, but the strength of the recovery is lower than we expected. we think that on the one hand, it is affected by the relative weakness of domestic consumption this year, on the other hand, fitness equipment belongs to durable consumer goods. The concentrated consumption during the epidemic has overdrawn the demand of some industries. However, in the long run, the sports and fitness industry is expected to maintain steady growth with the support of national policies, and the short-term "work programme on restoring and expanding sports consumption" is expected to promote the accelerated recovery of industry demand.

Be optimistic about the channel expansion space of the company. The company has established and improved online and offline, ToC/ToB/TOG channels, channel advantages are significant. In recent years, the company has stepped up the development of ToB and ToG channels, achieved rapid growth in B-end customers and campus customers, and improved the fine management level of dealers in offline retail channels to promote the transformation and upgrading of stores. We suggest that we pay attention to the follow-up progress of the business. Online, the company through JD.com self-management, Pinduoduo and other new platforms to deal with the pressure of the industry, online channel performance continues to lead the industry.

We are optimistic about the future channel expansion space of the company, focusing on the progress of ToB and ToG channel expansion.

Profit forecast and valuation

Keep the earnings forecast unchanged, and the current share price corresponds to 36max / 30x Pmax E in 2023 / 2024. Maintain the outperform industry rating, taking into account the industry policy catalysis, raise the target price by 8% to 14 yuan, corresponding to 2023 Unix 2024, respectively 42max 35 times Pmax E, which has 17% upside space compared with the current stock price.

Risk

The channel development is not as expected; the price of raw materials fluctuates greatly.