Event: The company released its 2024 quarterly report. 24Q1 achieved operating income of 1.17 billion yuan, -14.5% year-on-year, realized net profit of 180 million yuan, or -43.8% year-on-year, and realized net profit without deduction of 170 million yuan, or -40.8% year-on-year.

The contraction of the main brand strategy has put pressure on revenue. Portable shaver upgrades and new high-speed hair dryer products are expected to help the company stabilize in the second quarter. The decline in the company's revenue in the first quarter was mainly due to the company's H2 initiative to shrink the low-end products of the main Feike brand last year, and vRui undertook it. We expect vPro's revenue share to increase significantly from 17% to 22% in Q1. In '23, vPro's revenue reached 900 million yuan, doubling growth. The company's strategy is to speed up the iteration of vPro products, launch new portable single/double head and three-blade products, and accelerate the online channel content marketing layout. It is expected to achieve rapid expansion and take on the revenue gap of Feike's low-end products in '24. In terms of new Feike products, the company launched a 199 yuan high-speed hair dryer and a 399 yuan portable shaver product in Q1. On the one hand, it made up for the decline in dividends for small Frisbee products, and on the other hand, it was looking for a second pillar of growth. According to Aowei Cloud, online retail sales of high-speed hair dryers in the 24Q1 hair dryer market accounted for 31%, an increase of 16 pcts over the previous year. We expect Feike's high-speed hair dryer products to sell more than 3 million units throughout the year, driving a steady recovery in revenue.

Sales expenses have increased investment, and profitability continues to increase. 24Q1 achieved a gross profit margin of 57.10%, +1.02pct year-on-year, which is expected to benefit from the company's product structure upgrade. 1) Expense side: The 24Q1 company's expense ratio was 38.59%, +9.68pct, with sales/management/R&D/finance expenses rates of 33.61%/3.65%/1.55%/-0.23%, respectively, and +8.85/+1.11/-0.14pct, respectively. The company's marketing continues to drive up sales expenses, which is expected to be related to increased promotion of new products (high-speed hair dryers, mecha shavers) + intense online competition; 2) Cash flow side: 24Q1's cash flow from the company's operating activities was 2.38 million yuan, higher than Net profit attributable to mother for the same period.

Investment advice: We expect the company's 2024-2026 performance to be 12/14/1.6 billion, with year-on-year increases of 17%/15%/15%, respectively, corresponding to a valuation of 17 times/15 times/13 times, and maintain a “highly recommended” investment rating.

Risk warning: New product performance falls short of expectations, raw material prices have risen sharply, and market competition has intensified.