Covos publishes its 2023 Annual Report and 2024 Quarterly Report. In 2023, the company achieved revenue of 15.5 billion yuan, +1.2% year-on-year; net profit to mother was 610 million yuan, -64% year-on-year. Among them, in a single quarter, the company achieved revenue of 4.97 billion yuan, -4.4% year-on-year; realized net profit of 08 billion yuan, or -98.5% year-on-year in Q4. In 2024, Q1 achieved revenue of 3.47 billion yuan, +7.4% year on year; realized net profit to mother of 300 million yuan, -8.7% year over year.
Domestic operations are under phased pressure, and the product matrix will be adjusted in the future. The revenue of the two major brands, Covos and Tianke, was +1.67% year over year, driving total revenue +1.2% year over year. The overall recovery in the domestic consumer market was weak. The company lacked a product layout to reduce this model in the low price segment of sweeper robots. Combined with intense price competition in the floor washer industry, domestic revenue performance was under pressure, and domestic sales revenue was -11.4% year over year. We expect revenue from Covos and Tianke to return to double digits in 24Q1. The new T30 complements the low to medium price range, driving a recovery in market share.
It is expected that domestic floor washing machine price competition will slow down in '24; the impact of product layout on the revenue side will gradually become apparent as subsequent new products continue to increase in proportion.
Overseas performance is impressive, and export sales are expected to contribute to long-term growth. In '23, the export sales of the Covos brand were +20.1% year-on-year, and the export sales of the Tianke brand were +40.5% year-on-year, with growth in all major overseas regions. The Covos brand relied on direct channels in the European market, with revenue growth of +40.5% year over year. The Tianke brand surpassed 1,800 Target retail channel stores in the US, and overall export online revenue was +49.4% year-on-year, maintaining the number one sales volume in the floor washer category on Amazon in the US, Canada, the UK, Germany, France, and Italy. Export sales continued to grow in 24Q1, and the European market is expected to perform even stronger.
Investment in new business+falling average prices for domestic products depress performance, and profit recovery can be expected in 24 years. The gross profit margin for 23 years was 47.5%, -4.1pct year on year. It was mainly affected by the increase in material costs due to the introduction of new features in the product, and the decline in the average price of products in the domestic industry. Furthermore, new categories such as commercial cleaning robots, lawnmower robots, and Shikwan smart cooking machines are in a net investment period, and losses are expected to reduce overall profit performance. Significant improvements are expected in 24Q1. On the cost side, 23Q4 sales/management/ R&D/ finance rates were 37.9%/3.4%/-0.2%, respectively, +3.8/+0.3/+0.5/-0.5pct. The increase in sales expenses was mainly due to the increase in after-sales maintenance costs and marketing and promotion expenses. The company will continue to optimize cost allocation in the future. The 24Q1 sales expense ratio is -1.6% year-on-year, which means that product layout optimization has increased the marketing conversion rate. With new business losses narrowing, product matrix and channel market expansion, and cost investment optimization, the company's profitability can be expected to pick up.
Investment advice: Starting in Q1, the company's floor scrubbers are facing slowing pressure+the launch of cost-effective products for sweepers has been controlled reasonably. Marginal changes are obvious, and we have raised our profit forecast appropriately. The company is expected to achieve net profit of 13.6/16.6/1.85 billion yuan in 24-26, +122%/+22%/+11% year-on-year. The current stock price corresponds to PE valuations 21/17/16 times, respectively. Considering that the company's leading position in clean appliances is still stable, it maintains a “highly recommended” investment rating.
Risk warning: demand for sweeper robots falls short of expectations, price wars in the floor washer industry, overseas economic recession, etc.