Incident: Stone held a new product launch conference on March 29 to continue to focus on product innovation and launch the new V-series ultra-thin sweeper. We are optimistic that Stone will continue to improve its market competitiveness on a global scale. The company recently released its 2023 annual report: revenue of 8.65 billion yuan in 2023, YoY +30.5%; net profit to mother of 2.05 billion yuan, YoY +73.3%. After conversion, Q4 achieved revenue of 2.97 billion yuan in a single quarter, YoY +32.6%; net profit to mother of 690 million yuan, YoY +110.3%. The company maintained a rapid growth trend in Q4 revenue and performance.

Launching ultra-thin V series models, leading industry innovation and upgrading: On March 29, Stone released two new models, V20 and G20S, at the domestic product launch conference. The V20 is a new series of models launched by Stone Technology. We believe that the product highlights of the V20 are product structure optimization brought about by innovation in navigation technology, which can complete thinner product designs. The V20 is equipped with a new Stararray pilot navigation system and uses the world's first dual-light solid-state lidar navigation obstacle avoidance technology to achieve the application of 3dToF in the field of sweepers. On the one hand, the accuracy of obstacle avoidance has been improved, and on the other hand, it has been structurally separated from the structure of an overhead lidar, reducing the thickness of the product to 82 mm, which is the thinnest in the world. Currently, the price of the V20 on the Tmall JD platform is 4,799 yuan, which is between the price ranges of the Stone P series and G series. The V series uses a new product structure, and we expect there is room for cost optimization once the effects of scale are released. The G20S is a new product in the flagship G series. Compared with the G20, it has been upgraded in various dimensions such as navigation obstacle avoidance, cleaning ability, and base station convenience, which is expected to help Stone occupy a high-end market share.

The volume and price of stone sweepers rose sharply in 2023: According to the company's annual report data, the company sold 2.6 million units in 2023, YoY +16%. We estimate that the average price growth rate of sweeper products is about 10%. We believe that the increase in the company's average price is mainly driven by overseas product upgrades. According to Aowei data, the average domestic online sales price of stone sweepers in 2023 is YoY -1%.

The overseas sweeper industry remains booming: According to Google Trends data, global search popularity for 2024q1 sweepers is +11% YoY +11%, maintaining the growth trend. There is still plenty of room for improvement in the global penetration rate of sweepers, and we remain optimistic about the long-term growth of the industry. Chinese brands represented by Stone have accelerated the optimization and upgrading of product structures in overseas markets through multi-functional composite products such as self-cleaning, self-dust collection, drying, and intelligent water sewerage, thereby increasing market penetration. At present, the proportion of all-purpose base station products in sweeper products in overseas markets is still low. We believe that in 2024, Stone will continue to seize the dividends of overseas product upgrades and drive overseas revenue growth.

In terms of volume and price, Stone's overseas business still has great potential for growth in 2024: in terms of price, new features will drive the price of flagship models to continue to expand upward. In January 2024, Stone exhibited new overseas products at the CES exhibition. The high-end flagship model S8 MaxV Ultra sold for 1799.99 US dollars, which is still an increase from the S8 Pro Ultra (selling price of 1599.99 US dollars) released by Stone in the same period last year. In terms of sales, we believe that Stone has great potential to explore on the overseas channel side in 2024:1) Stone will build a local team in overseas markets, deepen local marketing, and improve local user operations, and it is expected that it will continue to increase brand awareness in overseas countries. In 2023, the company's direct channel revenue YoY was +61%, with significant results; 2) The company first entered the US offline physical retail chain in 2023, and had expanded to more than 180 offline Target stores in the US by the end of 2023. The company's products are highly competitive in the US market, and it is expected to accelerate US business growth after entering offline channels. In 2023, iRobot, a leading US sweeper company, had revenue YoY -30% in North America, and Stone Technology's subsidiary Hong Kong Xiaowen, which is responsible for connecting with Amazon's business in the US, earned +50% YoY in 2023.

There is still plenty of room for price in the domestic market: looking at the domestic market, in 2023, the domestic sweeper industry had sales YoY +10%, average price YoY +6%, and sales YoY +4%. Domestic sweepers sold 4.58 million units in 2023, which is still a big gap from the peak of 6.54 million units in 2020. With the improvement of the cleaning base station function, domestic sweeper prices have increased rapidly since 2021. We believe that at present, the functions of base station products are improving. Along with the increase in scale effects, more high-quality base station products in the low price range are gradually being launched, which is expected to continue to drive sales growth in the industry. Sweepers under 3,000 yuan accounted for 48% of the industry's online sales in 2021. In 2023, this ratio dropped to 20%, and the low-price market has great potential. The price of the P10, the main model sold by Stone in 2023, has dropped to 2,799 yuan. The company continues to innovate, and while seizing the high-end market share through flagship models, it is expected to gain growth from the domestic low-price market.

More blossoms have blossomed, and the company's new categories are growing rapidly: the company achieved revenue of 550 million yuan in 2023 for smart appliances other than sweeping robots, and YoY +109.4%. The company launched a new category of washing machines with integrated washing and drying in 2023, and SKUs for floor scrubbers are constantly being enriched. Businesses other than sweepers have achieved rapid growth, demonstrating the company's strong technical research and development capabilities and product line expansion capabilities. In January 2024, the company released the new A20 series of floor scrubbers. The washing machine with integrated washing and drying also expanded from the initial H1 single model to three models. We believe that the company's new category is expected to maintain rapid growth.

Investment advice: Stone's leading product strength is the foundation for future revenue growth. Streamlining SKUs and excellent management capabilities will maintain industry-leading profitability. Stone's 2024-2026 EPS is expected to be 17.75/19.81/21.93 yuan respectively, with a 6-month target price of 443.75 yuan, corresponding to the 2024 PE valuation of 25x, maintaining a buy-A investment rating.

Risk warning: Overseas economic environment deteriorates, industry competition intensifies