Introduction to this report:

The company's export sales led to overall growth. Q1 performance improved, profit margins recovered significantly, and business improvements can be expected throughout the year. Increase your holdings.

Key points of investment:

Investment recommendations Since the company reduced costs and increased efficiency faster than expected, we raised the 2024-2025 profit forecast and added the 2026 profit forecast. The 2024-2026 EPS is expected to be 2.45/2.93/3.37 yuan (the original value in 2024-2025 was 1.88/2.34 yuan, the increase was +30%/+25%), +131%/+20%/+15% compared to the same period. Refer to comparable companies and give the company 24xPE in 2024, raise the target price to 58.75 yuan to maintain the “increase in holdings” evaluation grade.

The performance exceeded expectations, and Q1 ushered in an inflection point: the company's 2023 revenue was 15.50 billion yuan, +1.2% year over year, and net profit to mother was 61 million yuan, -64.0% year over year. The company's revenue for 2024Q1 was 3.47 billion yuan, +7.4% year on year, net profit to mother was 298 million yuan, -8.7% year over year, net profit after deducting non-return to mother was 290 million yuan, +0.26% year on year. Previously, the market expected a double-digit decline in the company's performance. The actual excess of expectations was mainly due to the increase in net interest rate driven by the improvement in the efficiency of the company's expense investment.

Short-term adjustments in domestic sales, driven by export sales; in 2023, Covos brand volume decreased and increased, and revenue/sales/average price were -2%/-9%/+8%, respectively. The volume and price of the Tianke brand increased and decreased, and the 2023 revenue/sales/average price of smart household appliances were +4.8%/+25.2%/-16.3%, respectively. The company's export sales expansion has led to an increase in overall scale. Covos is expected to be +11% overall, +10% domestically, and +13% in 2024Q1; the overall increase is +10%, the domestic market is flat, and +37% overseas.

Profit margins have been restored, and operational improvements can be expected: 2024Q1's gross margin was 47.2%, -3.5pct year over year, gross sales gap 19.49%, up 10.9pct month-on-month in 2023Q4. We expect that the reduction in the cost of the company's new sweeper products in 2024, the gradual stabilization of the price of floor washers, and the increase in cost investment and conversion efficiency assessments will all lead to a restoration of the company's profitability.

Risk warning: There is uncertainty about overseas market expansion, and uncertainty about the release of new categories