The company expects 2023 profit to turn a year-on-year loss into a profit
The company announced a positive profit forecast: net profit to mother of 60 to 85 million US dollars in 2023, compared with a loss of 16.32 million US dollars in the same period last year; net profit due to 2H23 was 2738 to 52.38 million US dollars, compared with a loss of 31.8 million US dollars for the same period last year. The company's profit forecast is in line with our expectations.
Key points of interest
Revenue bucked the trend and profitability recovered: 1) Since 2023, there has been no significant improvement in demand in the European and American small home appliance markets. However, the company's individual products such as purifiers, humidifiers, and tower fans performed well, and revenue increased against the trend. From 1 to 3Q23, the company's total unaudited sales volume was +27.2% year-on-year, and its market share continued to increase. We estimate that 4Q23 will remain higher than the industry's growth trend. 2) The company is a newcomer in emerging cross-border small household appliances, and its ability to withstand risks is still improving. From 1H21 to 2022, the company's profitability declined markedly due to multiple factors such as rapid rise in shipping costs, rising raw material costs, tariff changes, and weakening market demand. 2H21/1H22/2H22 gross profit margin was 34%/39%/21%, year-on-year, -6.9/-5.2/-13.8ppt, and 2H21-2H22's net profit margin fell to less than 7%. 3) Since 2023, the cost side has remained stable, and the company's profitability has recovered, and 1H23's net profit margin is 11.8%; under the profit guarantee strategy, the company has controlled the discount intensity of the Black Friday promotion, and we estimate that the 2H23 net profit margin is still expected to be maintained.
Category expansion and channel expansion are still important growth drivers for the company: 1) Since 2021, the company has continued to expand non-Amazon offline channels and successfully entered the major offline retailer system in North America. The share of non-Amazon channel revenue increased from 4% in 2020 to 21% of 1H23. From 1-3Q23, the company's sales in non-Amazon channels were +96% year-on-year.
2) At present, the new humidifier has developed into the third largest single product in addition to purifiers and air fryers, and the tower fan launched in 2023 is also driving the company's revenue growth rapidly. We expect that the continued introduction of new products such as the company's vacuum cleaners in 2024 will continue to contribute new increases. 3) In addition, the company is also paying more attention to the European region. We expect that with the continued layout of new markets such as the French region and the United Kingdom, the share of revenue in the European region will continue to increase.
Vesync is a new cross-border small home appliance company that is deeply involved in the US online market. It is also a rare company with multi-dimensional competitiveness such as cross-border channels, brands, and product capabilities. Currently, the company is in the growth stage. It has achieved some success in only some categories of Huanden and kitchen appliances, and is gradually expanding more SKUs. We believe that if the company's new product logic is continuously verified, there is still plenty of room for growth in the future.
Profit forecasting and valuation
We maintain our profit forecast for 2023/2024/2025, and the current stock price corresponds to 9.0 times/7.5 times P/E for 2024/2025. Maintaining an outperforming industry rating and considering the recent valuation correction of Hong Kong stocks, we lowered our target price by 14% to HK$5.6, corresponding to 12.1 times/10.1 times P/E in 2024/2025, with 35% upward space.
risks
Risk of fluctuations in market demand; risk of exchange rate fluctuations; risk of rising raw material prices.