The 2Q23 performance fell short of our expectations, mainly due to the decline in export revenue. The company announced 1H23 results: 1H23 achieved revenue of 977 million yuan, -20.7% year-on-year; net profit of 108 million yuan, -28.0%; net profit after deducting non-return net profit of 99 million yuan, or -30.1% year-on-year. Corresponding to 2Q23, the company achieved revenue of 559 million yuan, -18.1% year-on-year; net profit of 82 million yuan, -9.8% of the same period; net profit after deducting net profit of 76 million yuan, -14.0% year-on-year. The company's performance fell short of our expectations, mainly due to a significant decline in the company's export revenue.
The pressure on companies to remove inventory is later than that of the industry: 1) The pressure on China's home appliance exports to remove inventory is mainly in 2022 and 1H2023. The company's overseas customers are concentrated, and the pressure to remove inventory began to appear in 1H2023, and the pace is slower than the overall industry. 2) 1H23's export revenue was -30.2% year-on-year, which was greatly affected by overseas demand and external competition; 1H23's revenue from exports of wired/wireless vacuum cleaners, the company's main product, was -38.1%/-28.6%, respectively.
The new business is showing initial results: 1) The company is actively developing domestic customers. 1H23 domestic sales revenue was +25.8% year over year; domestic sales revenue accounted for +9.9ppt to 26.7% year over year. Among them, the sweeping robot business achieved revenue of 49.6 million yuan; the second-generation floor washer product in collaboration with Fangtai has been successfully delivered, and a new model will be launched in the second half of the year. 2) The energy storage company Xihe Future, which the company has invested in, completed its first shipment in February of this year. 1H23's energy storage products achieved revenue of 54.19 million yuan; the company expects its revenue contribution to the second half of the year to be even more obvious. 3) The company's commercial beauty equipment products have been officially put into mass production; pet hair trimmers, wireless leaf blowers for outdoor tools, and fabric cleaners have all been mass-produced.
Benefiting from exchange rates and raw materials, 2Q23's profit margin increased: 1) 2Q23's gross profit margin and net return interest rate were +0.8ppt, +1.3ppt to 19.4% and 14.7%, respectively. 1H23's exchange earnings of the company were 1.62 million yuan. 2) In terms of cost ratio, 2Q23, the company's sales/management/R&D expense ratio was flat /+0.5pp/+0.6ppt to 0.4%/4.0%/3.4%, respectively, and the cost expenditure was relatively stable.
Development trends
We expect the company's home appliance export business 2H2023 will continue to face inventory removal pressure. The new business is developing rapidly, but for the time being, it has not been possible to make up for the decline in home appliance exports.
Profit forecasting and valuation
Due to pressure from overseas demand and increased market competition, we lowered our profit forecast for 2023 and 2024 by 16% to 275 million yuan or 302 million yuan. The current stock price corresponds to 24.5 times the 2023 price-earnings ratio and 22.3 times the 2024 price-earnings ratio. Maintain outperforming industry ratings. Due to uncertainty about export performance and the decline in industry valuation centers, we lowered our target price by 26% to 15.00 yuan, corresponding to 30.6 times the 2023 price-earnings ratio and 27.9 times the 2024 price-earnings ratio. There is 25% room for increase from the current stock price.
risks
Market demand fluctuation risk, competition risk, risk of new business falling short of expectations, exchange rate risk.