Demand for small kitchen appliances is weak, waiting to be repaired

On March 28, the company disclosed its 2023 annual report. Due to the spin-off of the SharkNinja business in 23, total revenue from continuing operations was about US$1,429 million, YOY -3.2% under comparable caliber, net profit from continuing operations was approximately US$70 million, and YOY -37% under comparable caliber. Domestic demand for small kitchen appliances in '24 was still being challenged. We adjusted the 24-25 net profit forecast to US$0.68/0.84 billion (24-25 years ago: US$1.11/131 million). As of March 28, 2024, Bloomberg Co.'s consistent PE forecast for 2024 was 14 times. Considering that the company was affected by the weak performance of domestic demand for small kitchen appliances, we gave the company a PE valuation of 11 times in 24, and the target price was adjusted to HK$1.66 (previous value: HK$2.25, corresponding to 9 times PE in 24 years). Maintain “buy-in.”

SharkNinja has strong performance in Asia Pacific, and future growth can be expected

After the company's organizational structure was adjusted, it still includes the SharkNinja Asia Pacific business unit (mainly including Japan, Australia and New Zealand, with products mainly cleaning appliances and kitchen appliances). In '23, SharkNinja Asia Pacific achieved sales revenue of US$152 million to third party customers, +137% over the same period last year. In the future, it may become the company's main gripper for overseas sales; related party sales were 87 million yuan, which was the same as the previous year.

It is expected to accelerate the implementation of overseas product development and advance the Asia-Pacific market. Data from the General Administration of Customs shows that since August 2023, the export value of toasters and food grinders/mixers has all recovered to double digits year-on-year. Among them, toasters have shown positive export performance in Asia. The company built a home appliance technology innovation center in Hong Kong in '23, which is conducive to continuously attracting international research and technology talents and efficiently promoting the company's localized R&D and implementation of smart home appliances exported by the company.

Domestic demand for small kitchen appliances is showing weak performance, waiting to be repaired

Due to a combination of factors such as weakening household demand, stratification of consumption, and strong optional attributes, domestic demand for small kitchen appliances was weak in '23. According to Aowei Cloud Network data, the overall retail sales of small kitchen appliances (including 15 categories) for the full year of 2023 show that the overall retail sales of small kitchen appliances (including 15 categories) were 54.93 billion yuan, down 9.6% year on year, and retail sales volume was 265.43 million units, down 1.8% year on year. Among them, online retail sales were -10.7%; offline retail sales were -6.0% year over year; only the emerging Douyin channel increased 24.7% year over year. The domestic consumption environment is expected to slowly improve in '24, and we still need to wait for domestic sales to recover.

Gross margin declined, and the expense ratio was affected by equity compensation, and the gross margin for continuous operation in 23 years was 34.1%, -2.3 pct year on year, mainly affected by weak domestic sales demand. The scale of sales and distribution expenses is stable, and the cost ratio has increased under the influence of declining revenue. However, due to the increase in equity compensation, the scale and cost ratio of administrative expenses have increased markedly, or will continue.

Risk warning: increased competition; rising raw material prices; fluctuating overseas demand.