Incident: VESYNC publishes its 2023 Annual Report. The company achieved revenue of $590 million in 2023, YoY +19.4%; realized net profit to mother of US$80 million and a loss of US$0.2 billion in the same period last year. After conversion, 2023H2 achieved revenue of US$310 million, YoY +15.5%; realized net profit of US$0.4 billion to mother, and lost US$0.3 billion in the same period last year. We believe that revenue is expected to maintain rapid growth as the company continues to expand product categories, actively lay out offline sales channels, and continue to explore European and Asian markets.
Rapid revenue growth continues: 2023H2's revenue continues to grow rapidly. By channel, 2023H2's Amazon channel revenue YoY is +9%, continuing steady growth; thanks to the increase in the number of offline retail stores the company has entered and the increase in product sales in stores, H2's revenue from non-Amazon channels is +45% YoY. By region, H2's North American market revenue YoY was +19%. The company's sales performance in the North American market is good, mainly due to: 1) Good sales of household environmental appliances such as air purifiers and humidifiers. According to the company's announcement, in 2023, the company's Levoit air purifiers had a sales share of +6pct in the US market, ranking first; the sales share of Levoit humidifiers increased to number one in the US market. 2) Revenue from offline channels is growing rapidly. The company's revenue on the Walmart channel increased by more than 150% in 2023. H2's revenue in the Asian market is YoY +120%, mainly due to rapid sales growth in the Japanese market, and the company's products have entered more than 1,400 mainstream supermarket stores in Singapore, Malaysia, and Thailand.
The company's profitability increased significantly: the company's net interest rate in 2023 was 13.2%, +16pct year on year. The company's net interest rate improved significantly in 2023, mainly due to: 1) The company voluntarily recalled air fryers in 2022, resulting in a provision of US$48.61 million. The relevant provision for 2023 was reduced to $7.17 million. 2) Decrease in international sea freight charges. According to Wind, China's export container freight index (US-West route) fell 66% year on year in 2023.
Investment advice: VESYNC is a leader in the US Amazon small home appliance market. It has a complete brand matrix, and has established a long-term cooperative relationship with Amazon, and relies on the advantages of the domestic industrial chain of high efficiency and low cost. The company is actively connecting offline retail channels and the European and Asia-Pacific markets. Looking forward to the future, we are optimistic that the company will continue to enrich product categories and expand channels.
We expect the company's EPS for 2024 to 2026 to be 0.08/0.09/0.11, respectively, with a price-earnings ratio of 10 times 2024, corresponding to a 6-month target price of HK$6.18 (using the USD/HKD exchange rate of 7.82 on March 25, 2024). Maintain a Buy-A investment rating.
Risk warning: Prices of raw materials have risen sharply, and shipping costs have risen sharply.