2023 Results Exceed Our Expectations

The company announced 2023 results: 2023 revenue of 1,216 billion yuan, -5.3% year on year; net profit to mother of 175 million yuan, +8.4% year on year. Corresponding to 4Q23 revenue of 380 million yuan, +51.1% year on year; net profit to mother was 50 million yuan, +86.9% year on year. The company's 2023 performance exceeded our expectations, mainly due to exchange rate fluctuations and product structure optimization, which increased the company's gross margin.

The company's main business 2H23 ushered in a reversal, and customer orders were optimistic in 24 years. 1) 1H23's revenue ratio was -30% year-on-year due to inventory removal from overseas customers. Although the company's inventory removal cycle started later than the industry, the revenue growth rate in the third quarter showed an inflection point and recovered quarterly. 3Q23/4Q23 revenue was +2%/+51% year-on-year. 2) China's vacuum cleaner and air compressor exports have been continuously repaired since 2Q23. 2H23's revenue from wet and dry vacuum cleaners and small air compressors was +10%/+56% year-on-year. We judge that the company has now moved beyond the influence of customers leaving the warehouse.

3) Recently, the company received a letter of commitment from Home Depot to purchase the company's HUSKY brand small air compressor series products, promising a purchase order amount of about 20 million US dollars, calculated to be about 145 million yuan.

Product structure optimization and exchange rate fluctuations have led to increased profitability. 1) The company's gross margin in 2023 was +5.9ppt to 38.5% year-on-year, mainly benefiting from exchange rate fluctuations and the increase in the share of high-end brands under the brand licensing model. Among them, the gross margin of the brand licensing/ODM/OEM model was +9.4/+3.9/+5.7ppt to 43.3%/29.8%/26.8% year-on-year. 2) The company increased investment in R&D and Amazon direct management. In 2023, the company's sales/management/R&D expenses ratio was +1.3pp/+0.2pp/+1.4ppt to 11.9%/4.3%/5.5% year-on-year. 3) Affected by exchange rate fluctuations, the company's exchange revenue for the full year of 2023 was 27.56 million yuan, a decrease of 4.54 million yuan compared to 2022. At the same time, interest income from US dollar time deposits increased dramatically. The financial expense ratio for 2023 was -1.2ppt year on year.

4) Under the combined influence, the company's net profit margin in 2023 was +1.8ppt to 14.4% year-on-year.

Development trends

Optimistic about new products and new market expansion, nursing robots are expected to achieve breakthroughs. 1) The company developed a new floor washer in 2023 and has been sold to the European market through its own brand model. We expect the company's floor scrubber may be introduced to the US market in 2024. The company has strong product development capabilities, and we expect the company to expand the category to new categories such as garden tools around core technology. 2) The company attaches importance to market expansion and plans to increase development efforts in markets such as Europe, South America, Australia, Japan, South Korea, and the Middle East. We believe that the new market is expected to grow rapidly in 2024. 3) In 2023, the company's nursing robots have made good progress in market promotion and customer development. We believe that with the country's encouragement of the health aids industry and the acquisition of relevant overseas certifications, the company's nursing robots are expected to achieve certain breakthroughs at home and abroad in 2024.

Profit forecasting and valuation

Due to the optimistic order expectations of the company's downstream customers, we raised our 2024/2025 net profit by 15.6%/13.4% to 216.255 million yuan. The current stock price corresponds to 18.5 times/15.6 times the 2024/2025 price-earnings ratio. Maintaining an industry rating and target price target price of 25.58 yuan, corresponding to 21.6 times/18.3 times the 2024/2025 price-earnings ratio, there is 17.2% upside compared to the current stock price.

risks

Risk of new category expansion falling short of expectations; risk of exchange rate fluctuations; risk of fluctuations in raw material prices.