Incidents:
Covos released the 2023 Annual Report and 2024 Quarterly Report, with 2023 revenue of 15.502 billion yuan (YoY +1.16%), net profit of 0.612 billion yuan (YoY -63.96%); Q4 2023 revenue of 4.971 billion yuan (-4.42% YoY) and net profit of 0.008 billion yuan (YoY -98.54%). Q1 2024 revenue was 3.474 billion yuan (YoY +7.35%) and net profit to mother was 0.298 billion yuan (-8.71% YoY).
Comment:
The product matrix continues to be rich, and overseas markets are beginning to shine. In 2023, Covos Service Robots and Tianke Smart Home Appliances achieved revenue of 7.68 billion yuan (-1.5% YoY) and 7.27 billion yuan (YoY +5.2%), respectively. Since the second half of 2023, the company has accelerated strategic adjustments, enriched the product layout of all-purpose base stations, and enriched the product portfolio in various price segments. In 2023, Covos all-purpose products shipped 1.55 million units (+68.6% YoY). We expect 2024 to better meet global consumer demand. Overseas revenue was 6.52 billion yuan (+25.8% year over year), and gross margin was 51.8%, an increase of 7.2 pct over the previous year; after completing the construction of the Singapore overseas headquarters, sales revenue in the European market increased by 41% year on year, and the number of stores in the Target retail channel in the US exceeded 1,800.
Competition in the domestic market is fierce, and 2024Q1's profitability improved month-on-month. Domestic revenue in 2023 was 8.98 billion yuan (-11.4% YoY), and gross margin was 44.4%, a year-on-year decrease of 10.8pct. While reducing high-margin products, fierce domestic competition also promoted product upgrading in the industry and enhanced the international competitiveness of the entire industry. 2024Q1 gross margin was 47.2%, a year-on-year decrease of 3.5 pct, an increase of 0.7 pct; the gross margin of 2023Q4 was 46.5%, a year-on-year decrease of 8.8 pct, an increase of 0.5 pct month-on-month, and profitability recovered quarterly.
Supply chain and operational efficiency have improved, and cost reduction plans are progressing in an orderly manner. In 2023, the company initially completed the construction of the Taiding New Energy Lithium Battery Project, improving the safety and cost control capabilities of core components. In terms of lean production, by promoting the TPM project, single machine working hours have been reduced by 30%, the product pass-through rate has been increased by 20%, and the production cycle has been shortened by 30%. The construction of Tianko's smart household appliances project with an annual output of 12 million units has a total investment of 0.22 billion yuan, and the construction plan is progressing in an orderly manner.
Profit forecast: Taking into account the company's product competitiveness and innovation, we expect the company's revenue to be 169.7/ 190.0/ 21.55 billion yuan respectively, up 9.5%/12.0%/13.4% year on year; net profit to mother will be 13.1/ 16.6/2 billion yuan, up 113.7%/27.0%/20.7% year on year. First coverage, giving a “buy” rating.
Risk warning: domestic demand declined, exports fell short of expectations, performance forecasts and valuations fell short of expectations