2023 results surpassed our expectations
The company announced 2023 results: 1) 2023 revenue of US$585 million, +19.4% year-on-year, and net profit of US$77 million to mother, turning a year-on-year loss into profit. 2) Corresponding to 2H23, the company's revenue was 309 million US dollars, +15.5% year-on-year, and net profit to mother was 45 million US dollars, turning a year-on-year loss into a profit. 3) At the end of 2023, the dividend of 15.69 HK cents/share is compounded by the interim dividend of 5.39 HK cents/share, and the annual dividend rate is 40%. The company's performance was higher than our expectations, mainly due to the company 2H23 always controlling the intensity of promotional discounts and the weakening of negative factors related to the cost side, which led to a significant recovery in profitability.
Products, channels, and regional markets expanded smoothly, and revenue recovered rapidly. 1) 1H23/2H23's revenue was +24%/+16%, respectively, returning to the double-digit growth range, mainly due to the good performance of the company's new products and successful expansion into new channels and new markets. 2) In 2023, the company launched new products such as tower fans and vacuum cleaners, and obtained good market feedback. The share of air purifiers and air humidifiers in the traditional dominant categories continued to increase. In 2023, the sales share in the US reached 29%/23% respectively, ranking first (NPD data). 3) Channel expansion went smoothly. In 2023, the company's non-Amazon channel revenue accounted for +5.7ppt to 22% year-on-year, and the products entered more than 11,000 mainstream retailers in North America, achieving a major breakthrough. 4) Regional expansion went smoothly. The European and Asian markets accounted for 21.5%/5.1% of revenue respectively in 2023. The Cosori kitchen appliances category continued to gain strength in the European market and continued to contribute to the increase in performance.
Profitability improved, and 2H23 turned a loss into a profit. 1) In 2022, the company was affected by many factors such as air fryer recalls, shipping costs, raw material costs, and talent investment, and profitability was clearly pressured. Negative factors were gradually mitigated since 2023, compounded by better sales of new products, and continued to release profits. Among them, 2H23 had a gross profit margin of 48.4% and a net profit margin of 14.5%, reaching a record high level. 2) Early personnel investment gradually released results. Overall expenses were well controlled in 2023. The sales expense ratio and management expense ratio were 16.9%/14.2%, respectively, the same level as -1.3 ppt per year. 3) The company's operating efficiency improved in 2023. The net cash flow from operating activities improved significantly compared to 2022, and the quality of operations was steady.
Development trends
As a newcomer to emerging cross-border small household appliances, the company has strong user insight and product innovation capabilities. Since 2023, it has accelerated the pace of promotion. It has also achieved major breakthroughs in offline channels in North America and online and offline channels in Europe and Asia Pacific. At the same time, early team building has basically been completed, and internal operations have been gradually optimized. We expect it to continue expanding in overseas markets.
Profit forecasting and valuation
Considering the smooth expansion of the company's business, we raised our 2024/2025 profit forecast by 11%/11% to US$92 million/US$109 million. The current stock price corresponds to 2024/2025 8.1x/6.8x P/E. Maintaining the outperforming industry rating, we simultaneously raised our target price by 14% to HK$6.40 based on the increase in profit, corresponding to 2024/2025 10.3x/8.7x P/E, with an upward margin of 26.7%.
risks
Risk of fluctuations in market demand; risk of exchange rate fluctuations; risk of rising raw material prices.