Q3 revenue fell short of expectations. It is optimistic that production capacity expansion will continue to grab market share. Keeping the “buy” rating unchanged, the company Q1-3 achieved revenue of 940 million yuan (-1.9%), net profit of 180 million yuan (+8.8%), net profit of 180 million yuan (+8.8%), and deducted non-net profit of 150 million yuan (+6.3%). Q3 alone achieved revenue of 330 million yuan (-7.2%), net profit of 500 million yuan+ (-3.4%), net profit of 0.5 million yuan + (-3.4%), and net profit of 0.4 billion yuan (-16.8%) after deducting non-net profit of 0.4 billion yuan (-16.8%). Performance is under pressure due to weak demand. We have lowered our profit forecast. We expect net profit for 2023-2025 to be 22/2.4/260 million yuan (original value in 2023-2025 was 2.6/3.0/350 million yuan), corresponding to EPS, 2.1/2.3/2.4 yuan, and the current stock price corresponding to PE is 17.5/16.0/15.0 times. The company's capacity expansion supports share, and we are optimistic that Q4 revenue growth will resume, and keep the “buy” rating unchanged.
The application for the issuance of convertible bonds was approved by the Shenzhen Stock Exchange, and it is optimistic that the expansion of production capacity to support market share seize the company's convertible bond issuance application was approved by the Shenzhen Stock Exchange on October 20. The total amount of capital to be raised was not more than 520 million yuan. Of these, the total capital to be raised was not more than 520 million yuan, of which the Environmental Integrated Stove Industrial Park (Phase II) project had a reverse investment of 350 million yuan and a reverse investment of 150 million yuan for brand promotion and construction projects. The company's current fund-raising project, the Environmental Integrated Stove Industrial Park (Phase II) project, is expected to add 70,000 sets/year integrated stove production capacity, 40,000 sets/year integrated sink production capacity, and 20,000 sets/year integrated dishwasher production capacity. After the company's previous fund-raising project, the Environmental Integrated Stove Industrial Park project, is expected to increase the production capacity of 150,000 sets/year of integrated stoves. The new production capacity of the company's previous fund-raising project and the current fund-raising project was 64.74% and 56.11% of the production capacity in 2022, respectively, with a significant increase in production. We are optimistic that the company's production capacity side will continue to expand, support the expansion side of emerging channels to increase its efforts, seize market share, and accelerate the expansion of the second curve in the washing category.
Q3 gross margin declined due to accelerated expansion of emerging channels. It is optimistic that profit margins will remain stable after revenue recovery. The gross margin of Q3 companies is 46.1% (-1.8pct), mainly emerging channels, accelerated expansion, and the period expense ratio is 32.5% (+2.8pct). Among them, sales/management/R&D/financial expenses were 23.5%/6.0%/4.6%/-1.7%, respectively, +2.6/+3.4/-2.7/0.5pct. Net interest rate was 14.7% (+0.6pct), with net investment under the overall influence of Q3 Earnings were $11 million (up $11 million year on year), credit impairment losses recovered to $03 million (up $16 million year on year), and net profit margin was 11.4% (-1.3 pct). It is optimistic that the cost rate will be diluted after revenue recovery, and the profitability side will remain stable.
Risk warning: risk of falling demand; risk of raw material prices; new product sales falling short of expectations.