3Q23 performance is lower than we expected.

The company announced its results for the third quarter of 2023: 1-3Q23 realized revenue of 918 million yuan, down 1.31% from the same period last year, and net profit from its mother was 57 million yuan, down 10.39% from the same period last year, deducting 47 million yuan from non-parent net profit, down 5.13% from the same period last year. The slow recovery of downstream demand caused the company's performance to be lower than we expected.

From a quarterly point of view, the company's 1Q/2Q/3Q23 realized revenue of 2.53%, 340, 325 million yuan respectively, compared with the same period last year,-8.83%, 0.79%, 4.84%, 0.14, 0.29, and 17.91%, respectively, respectively.

Trend of development

Income is under pressure. The company's 1-3Q23 revenue fell 1.31% compared with the same period last year, mainly because downstream consumer demand recovered slowly, but showed a gradual improvement trend. 3Q23 revenue returned to positive growth, and the growth rate increased 5.63ppt on a month-on-month basis. We expect the company's revenue performance to further accelerate in the fourth quarter with the sustained recovery of demand.

The gross profit margin has improved. Company 1-3Q23 gross profit margin is 29.12%, year-on-year + 0.52ppt, of which 3Q23 gross profit margin is unchanged at 27.5% year-on-year. From the cost side, the expense rate for the company's 1-3Q23 period is 20.31%, year-on-year + 0.52ppt, in which the sales / management + R & D / financial expense rate is 10.73%, 9.51% and 0.07%, respectively, and + 1.49ppt/-0.96ppt/-0.01ppt. Under the combined influence, the net interest rate of 1-3Q23 is 6.2%, compared with the same period of last year-0.63ppt.

Pay attention to the channel expansion of the company. In recent years, policies have increased support for residents' sports, and policies such as the "National Fitness Program" and the "work Program for restoring and expanding Sports consumption" have been promulgated one after another. We believe that industry policies will effectively promote the expansion of industry supply. Shuhua complies with the trend of the industry and increases the expansion of ToB and ToG channels. In recent years, the company's gyms, enterprises and institutions and other customers quickly increase volume.

In addition, the company actively promotes the transformation and upgrading of ToC channels, and we believe that the expansion of stores in the new model in the future is expected to become the core growth driver of retail channels. It is recommended to pay attention to the channel expansion of the company.

Profit forecast and valuation

Considering that the recovery in demand is lower than expected, we have reduced 2023 Universe's 2024 revenue by 12% to 1.412 billion RMB, and reduced its net profit by 24.1% to 105pm. The current share price corresponds to the price-to-earnings ratio of 41x32 in 2024. Maintain the outperform industry rating, take into account the adjustment of earnings forecasts and valuation switch, and lower the target price by 7% to 13.00 yuan, corresponding to 51 times earnings in 2023 / 2024, which has 25% upside space compared to the current stock price.

Risk

The expansion of new channels is not as expected; the competition in the industry is intensified; the price of raw materials fluctuates greatly.