Gross margin reached a record high in the first half of the year
Vesync 1H23 achieved revenue of 280 million dollars (US dollars, same below), an increase of 24.0% year-on-year, in line with expectations. Among them, revenue from the Amazon channel and non-Amazon channels increased by 13.9% and 87.7%, respectively, accounting for 79.3% and 20.7%, respectively. The steady increase in the share of non-Amazon channels shows that the company has achieved milestones in the major offline KA channel chain in Europe and America. Benefiting from falling manufacturing costs and shipping costs and the company's commitment to adjust the cost structure of products, 1H23's gross margin increased by 6 percentage points to 45.2%, a record high. Expenses involving product recalls during the period were 8 million, which led to a sharp increase in administrative expenses, but recall costs will gradually decrease in the second half of the year. 1H23's net profit was 33 million, a strong year-on-year increase of 110.5%. The net profit margin was 11.8%, and profitability was further restored.
Regional expansion results have been remarkable, and revenue in Europe has surged
By regional segment, 1H23 Europe's revenue increased 52.2% year over year, and its share expanded to 23.6%. Revenue from non-Amazon channels in Europe rose sharply by 191.7% year over year. The company's products have entered more than 2,500 mainstream supermarket stores in 10 European countries, including Northern Europe, Spain, Hungary, and Germany. COSORI kitchen appliances continue to maintain a high growth trend in the European market, and also achieved a market share of 32.8% in Spain, ranking first. The company's products in the Asian region have also entered mainstream supermarket stores in Japan, Singapore, Malaysia, Thailand, and the Middle East.
Create new products around family health
In the second half of the year, the company will launch new products under the original brand, including: Levoit hot humidifiers, evaporative humidifiers, and new vacuum cleaners; new COSORI ovens, third-generation air fryers, pressure cookers, etc.; Etikcity's large body fat scale, electric toothbrush series, etc. The company will also enter the pet market and is expected to launch pet feeding products etc. in the fourth quarter. The company also plans to establish a new brand to enter the wearables market. Management believes that developing products to solve pain points in consumers' lives is the path to sustainable growth.
Improved profit forecast; new target price of HK$5.00
Since gross margin was higher than expected and the probability of a sharp rise in costs in the short to medium term is low, FY23E/FY24E gross margin was raised by 5.5/2.7 percentage points to 45.7%/45.6%. The net profit of FY23E/24E was raised to 59 million/73 million. The expected valuation rolled over to the FY24E price-earnings ratio. Taking into account the low trading volume of Hong Kong stocks, the forward-looking price-earnings ratio was lowered by 10 times and the target price was raised to HK$5.00.
Investment risk
After September 30 this year, the US raised tariffs again; the economic slowdown in Europe and the US affected sales costs; and the response of the new product market fell short of expectations.