Gross revenue in the first three quarters increased by more than 20% over the same period last year.
The company announced that gross revenue in the third quarter of 2023 increased by 27.2% compared with the same period last year, of which the gross revenue of Amazon.Com Inc channels increased by about 17.6% year-on-year, and that of non-Amazon.Com Inc channels increased by about 95.8%. The revenue growth mainly comes from: 1) the fourth quarter is the holiday and shopping season in Europe and the United States, various channels began to prepare inventory in advance for the peak season in the third quarter; 2) the company's popular products, such as air purifiers, air fryers, air-fried ovens and tower fans, increased sales in the United States and Europe; and 3) the expansion of the European market and offline merchant channels brought revenue growth. The company's revenue in the first three quarters of this year is expected to grow by about 25% year-on-year. The company plans to launch new products such as steam humidifiers and double basket air explosions in the fourth quarter to further consolidate brand awareness and sales growth, laying the foundation for sales in the first quarter of 2024. The company will also launch a new brand and its new pet care-related products in the first quarter of next year, including smart feeders, water feeders and pet beauty meters. We expect FY23E revenue of 620 million yuan (US dollars, the same below), up 25.3% from the same period last year.
The gross profit margin remained flat in the second half of the year compared with the previous year.
Subcontracting costs fell synchronously in the third quarter, unchanged from the first half of the year. According to the Wande database, the Chinese container freight index for eastern and European routes fell by 62.5% and 72.4% respectively compared with the same period last year, significantly reducing the company's sea freight costs. We expect FY23E to have a gross profit margin of about 45.6%. This year, with the support of favorable factors such as new products, new market expansion, strong sales in Europe and the United States, and falling costs, the company will reverse the month-on-month decline in profits in the second half of the epidemic, and it is expected that profits will be flat in the second half of the year. The net profit for the whole year is expected to be 63 million yuan and 10.2%.
Buybacks boost investor confidence and maintain "buy" ratings
Based on sales in the first three quarters, slightly increased FY23E revenue to 620 million yuan; and raised gross profit margin forecast to 46.5%; at the same time slightly increased operating expenses. To sum up, we raised our FY23E net profit forecast by 9.5% to 64 million yuan to reflect the peak sales season. As the management believes that the company's share price is currently undervalued, the company will spend up to HK $100 million on share buybacks in the open market to demonstrate confidence in the company's long-term development and boost investor confidence. We raised the price-to-earnings ratio from 10 times to 11 times to reflect the company's profitability repair and positive fundamentals.
The new target price is HK $5.70, corresponding to 11 times FY24E's earnings.
Investment risk
The economic slowdown in Europe and the United States has affected retail sales fees; the market response to new products has been lower than expected.