Inventory digestion has come to an end, and the inventory preparation cycle has driven revenue to an inflection point. High shipping costs in 2022 led to an inventory backlog, compounded by the US inflation rate hike and the cash-based strategy of building materials retailers. The company's current round of inventory removal was digested from a high of 2.5 billion yuan at the end of 2022 to 1.8 billion yuan at the end of 2023 to meet the sales of safe inventory in one quarter.

In terms of terminal sales, due to Black Friday Christmas, Home Depot's November-December terminal sales are expected to change year on year. Hand/power tools increased 4-5% year over year, and garden tools grew by double digits. Furthermore, the US 30-year mortgage interest rate fell month-on-month from a high of 7.8% in early November to 6.6% in February. The Federal Reserve is expected to cut interest rates in 2024 to boost the recovery in existing home sales. Combined with 23Q4 entering the garden tool inventory cycle, the company's revenue inflection point is evident. Glebo's revenue increased 14% year over year in the fourth quarter.

The penetration rate of lithium batteries in commercial OPE riding is low, and Glebe is leading the release of commercial riding products. The global OPE market is worth $30 billion, of which household and commercial products each account for almost half. According to shipment statistics, refer to OPEI caliber. Currently, the penetration rate of lithium battery products for household lawnmowers (excluding riding products) is 35% (50%), while the penetration rate of lithium battery products for commercial lawnmowers is less than 1%, which is still in its infancy. Glebe's commercial ride-on products are outstanding. The 2022H2 launched the second-generation commercial lithium-ion riding ZTR lawnmower “Optimus Prime”. The product performed well after a generation of improvements and marketing. We expect shipments to reach 1,300 units in 2023, setting a second growth curve. In addition, STIHL, the company's second shareholder, is a world-renowned chain saw and power tool oil engine brand, and has a strong overseas channel layout, which is expected to support the company's commercial use of lawnmowers.

Multiple channels blossom: Develop channels such as market openers, Amazon, Walmart, etc., to balance the risk that Lowe's share is too high.

Before 2020, the company's single channel accounted for more than 50% of revenue. After experiencing changes in channel relationships, the company rapidly developed supermarket channel customers such as Amazon, Market Opener, Harbor Freight, TSC, and Walmart, while increasing Toro\ Stihl's foundry business cooperation, which significantly reduced the company's dependence on Lowe's. Up to now, the company's dependence on Lowe's has been reduced to about 10%, while the share of its own brands has rapidly increased to more than 75%, successfully completing brand and channel transformation and upgrading. The Greenworks brand is well known in Europe and America, and its market share in lithium battery OPE has steadily increased to 12%, second only to Chuangke Industrial and Quanfeng Holdings. Furthermore, the 24V lithium battery pack platform developed by the company attracted cooperation from Pizza Sheng vacuum cleaners, marking the official opening of Glebo's battery pack platform, covering the entire product line from outdoor OPE to indoor cleaning.

Gree has strong industrial chain integration capabilities. It has independent design and manufacturing capabilities for more than 80% of core components such as new energy battery packs, brushless motors, intelligent controllers, and chargers. At the same time, it has built a global supply chain in Vietnam, North America, etc., which can effectively hedge against the impact of tariffs caused by trade frictions, and there is room for cost optimization.

Profit forecasting and valuation analysis. The company's revenue for the fourth quarter of 2023 recovered year on year, sounding the trumpet of a reversal in operations, and the improvement in 2024 results was very flexible. The end of high-cost inventory digestion, commercial ZTR volume, and the recovery of household demand terminals. We expect the company's revenue for 2024-2026 to be 57/68/8 billion yuan, with revenue increases of 23%/20%/17%, respectively. The net profit for 2024-2026 is estimated to be 4.1/5.4/660 million yuan, respectively, corresponding to 15/11/9 times the valuation. Combining the company's first-mover advantage of lithium batteries in the commercial OPE market and the flexibility of performance growth, we refer to comparable companies that gave Glebe a reasonable valuation 18 times in 2024 and gave it a “highly recommended” investment rating.

Risk warning: European and American recession terminal demand fell short of expectations, raw material prices/shipping costs rose sharply, the pace of interest rate cuts by the Federal Reserve was delayed, trade frictions escalated, and the risk of losses continued.