The company announced its semi-annual report for 2023. In the first half of the year, it achieved revenue of 593 million yuan/ -4.4%, and net profit attributable to parents of 43 million yuan, or -7.7% year-on-year. After excluding non-recurring profit and loss affected by government subsidies, etc., the company achieved non-net profit of 36 million yuan, +5.0% year-on-year, achieving positive growth. Since this year, a series of encouraging policy documents for the sports industry have been issued one after another, and it is expected to continue to drive up industry demand in the future. At the same time, the company recently announced the draft restricted stock incentive plan for 2023. The performance assessment target corresponds to +14% to +20% of net profit for 2023/24, respectively. We estimate that the net profit growth rate corresponding to 2H23 is about 30% to 41%, demonstrating the management's full confidence in the company's future development and maintaining the “increase in holdings” rating.

Revenue: 2023H1 achieved revenue of 593 million yuan/ -4.4%, and the Q2 decline narrowed month-on-month. The company announced its 2023 semi-annual report. 2023H1 achieved revenue of 593 million yuan, -4.4% year-on-year. Among them, Q2's quarterly revenue was 340 million yuan, -0.8% year-on-year, and the decline was narrower than Q1's -8.8%. Looking at the split products, indoor fitness equipment/outdoor fitness path/ display stand revenue reached 381/0.97 billion yuan, respectively, compared to -4.5%/+17.3%/-19.4%, respectively. Among them, indoor fitness equipment sales revenue gradually recovered, and the outdoor fitness path business recovered well in the face of government and enterprise sales.

Profit: Net profit for the first half of the year reached 43 million yuan/ -7.7%, net profit after deducting non-net profit, which achieved positive growth. In 2023H1, the company achieved net profit of 43 million yuan, -7.7% year-on-year; after excluding non-recurring profit and loss affected by government subsidies, etc., the company achieved non-net profit of 36 million yuan, +5.0% year-on-year, achieving positive growth. In terms of profitability, the company's 1H23 gross margin reached 30.0% /+0.9ppt. Among them, the gross margin of indoor fitness equipment, outdoor path equipment, and display stands was +1.0/+1.2/+2.4ppts to 31.0%/25.4%/29.7%, respectively. The gross margin of each business increased as a result of falling raw material prices. In terms of cost ratio, the company's sales/management/R&D/financial expense ratio for the first half of the year was +1.8/-0.7/-0.4/+0.1 ppts, respectively. The increase in the overall cost rate partially offset the increase in gross margin. In the end, the company's 1H23 net interest rate fell 0.3ppt to 7.3% year-on-year, after deducting the non-net interest rate +0.6ppt to 6.1%.

Outlook: Policies drive up industry demand, and equity incentives show management confidence. Since this year, a series of encouraging policy documents for the sports industry have been issued one after another. The “National Fitness Facility Improvement Action Plan (2023-2025)” and the “Work Plan on Restoring and Expanding Sports Consumption” have put forward requirements for the upgrading and coverage of fitness equipment and venue facilities, which are expected to continue to drive up industry demand in the future. Furthermore, the company recently announced the draft restricted stock incentive plan for 2023. The plan is to grant 1.4 million restricted shares (0.34% of the total share capital on the day of the announcement) to 9 company executives and core cadres. The grant price is 6.20 yuan per share. The performance assessment target corresponds to net profit of +14% to +20% in 2023/24. We estimate that the net profit growth rate corresponding to 2H23 is about 30% to 41%, demonstrating management's full confidence in future development.

Risk factors: macroeconomic pressure; sharp rise in raw material prices; fitness penetration rate falling short of expectations; weakening industrial support; increased competition in the fitness equipment industry.

Profit forecast, valuation and rating: The company announced its semi-annual report for 2023. In the first half of the year, it achieved revenue of 593 million yuan/ -4.4%, and net profit of 43 million yuan, or -7.7% year-on-year. After excluding non-recurring profit and loss affected by government subsidies, etc., the company achieved non-net profit of 36 million yuan, +5.0% year-on-year, achieving positive growth. Considering that there is some pressure to recover short-term demand in the industry, we slightly lowered the company's 2023/24/25 EPS forecast to 0.32/0.38/0.44 yuan (the original forecast was 0.33/0.40/0.45 yuan). Referring to the valuation level of Technogym, a leading overseas fitness equipment company (16x 2024 PE, from Bloomberg) and the average valuation level since the company was listed (44xPE), and considering the company's leading position as a local home fitness equipment company, we gave the company 30 times PE in 2024, corresponding to a target price of 12 yuan, maintaining the “increase in holding” rating.