The company issued a performance forecast for the mid-term report in 2023, which is expected to achieve a net profit of 1.69-180 million yuan, an increase of 60%-70% over the same period last year, and a net profit of 1.63%-172 million yuan, an increase of 85%-95% over the same period last year. The company's business recovered strongly in the first half of the year. We believe that the company will benefit from the recovery of the smart headphone industry and the trend of brand concentration in the short and medium term. On the one hand, the medium-and long-term company promotes the iteration of intelligent upgrading of terminals, while laying out brands to go out to sea and expanding new products such as hearing aids / hearing aids. We raise the company's 2023 / 2024 EPS forecast to 0.47 / 0.61 / 0.67 in 2025, maintaining the "overweight" rating.

We estimate that the company's 2023Q2 will achieve a net profit of RMB 0.93-104 million, an increase of 82% RMB104% over the same period last year. The strong business performance is mainly due to the gradual recovery of downstream demand and the improvement of product strength. Specifically, according to the company's 2023H2 performance forecast and Q1 performance, we calculate that the company's 2023Q2 homing net profit increased by 82%, 22%, 98 million yuan, 102%, 123% and 20% respectively in the second quarter. On the one hand, the company continued to increase investment in research and development of new products and brand building. The profit level has improved, on the other hand, the inventory of headphones, speakers and other products is at a reasonable level, and the outstanding product shipment performance in the mid-618 promotion season also led to the performance. Reviewing the 2023Q1 data, the company's business has improved month-on-month, with 2022Q3/2022Q4/2023Q1 revenue of 682 million yuan and non-return net profit of 0.61 trillion yuan, respectively. Taking into account the performance of 2022Q2, the profit perspective has achieved four consecutive quarters of year-on-year and month-on-month growth. Looking forward to the follow-up, with the gradual recovery of downstream demand, the improvement of the company's own product strength and the intelligent upgrading of the company's terminal, we are optimistic about the continuous improvement of the company's performance.

Firmly promote technology + brand layout, younger operation + channel expansion to improve competitiveness. (1) Rapid iteration of products / technology, active layout of AI, opening a new growth curve of the company. The iterative speed of the company's smart headphone product array is significantly faster than that of other audio brands, and based on its deep accumulation in acoustics, the company is in an industry-leading position in core functions such as active noise reduction and sound quality optimization. At present, the company is strengthening the layout of high-end and professional high value-added products such as hearing aids, game headphones, active noise reduction headphones, wireless speakers, car stereos and professional audio. According to the company announcement, the company attaches great importance to the development of AI technology and has always actively followed its application. At present, a number of product development has used or will use related AI technology. (2) three-dimensional brand strategy + user profile distinction + layout of professional audio to achieve differentiated brand positioning. The company adopts three-dimensional brand strategy to cover different price segments of high, middle and low-end products, and successively launches "Xemal Shengmai" brand and "HECATE".

Brand, "Volona" brand, "Huazai" brand and "AIRPULSE" located in professional Hi-Fi audio

Brand, wholly-owned acquisition of Japanese STAX Ltd., in 2012 to acquire headphone brand STAX, and shares in well-known American tablet headphone brand Audeze LLC., multi-brand matrix to cover customer demand in 2016.

(3) practice the concept of younger management / marketing and marketization to enhance the competitiveness of the company. Since 2016, the company has gradually promoted young backbones from within to expand the new business layout of headphones, and the products focus more on the needs of young consumers; at the same time, the marketing end actively carries out lead sales through new media such as Douyin Live, JD.com Live, Little Red Book and other new media. (4) at the channel level, the company makes great efforts to develop new channels such as traditional online channels (JD.com, Tmall) + live e-commerce in the domestic market, and in the overseas market, the company continues to develop online direct channels on the basis of retaining the regional exclusive general distributor system. In the future, based on the existing popularity and cooperation with overseas headphone brands, the company is expected to introduce professionals and increase the sales of headphone products on overseas lines, so as to keep pace with the domestic / overseas markets.

Risk factors: the risk of lower-than-expected technology iteration and market demand; the risk of rising raw material prices, energy prices and labor costs; the company's lower-than-expected overseas expansion; the risk of a decline in the company's brand.

Earnings forecast, valuation and rating: the company is a leading and world-renowned third-party independent audio brand, which began to enter the smart headset market and achieve rapid landing and iteration in 2018. Considering that the company's share is expected to continue to increase and the downstream demand will gradually recover, we have raised the company's 2023x2024 EPS forecast to 0.47max 0.61 won in 2025 (the original forecast is 0.37pm 0.43max 0.49 yuan). Considering that the upside of 2022H1's share price is partly on the capital side, there is a certain deviation between the company's current valuation level (we expect this year's profit to correspond to the current market capitalization of about 39 times PE) and the historical average valuation level (the average Forward PE in the past three years is 29 times), so we do not give the company a target price for the time being and maintain an "overweight" rating.