Key points of investment
Sluggish industry demand put pressure on the 2023 results. Net profit from 2024Q1 net profit returned to positive growth. In 2023, the company achieved revenue of 15.50 billion yuan, +1.2% year on year, net profit to mother of 61 billion yuan, -64.0% year on year, single Q4 achieved revenue of 4.97 billion yuan, -4.4% year on year, and net profit to mother of 8.39 million yuan, and -98.5% year on year. The pressure on the company's performance is mainly due to the weak overall recovery of the domestic consumer market compounded by the intensification of competition in the industry. By product: ① Service robots: 2023 revenue of 7.74 billion yuan, -1.7%, of which the Covos brand revenue was 7.68 billion yuan, -1.5% year-on-year, and the industry growth rate was 5.1%. The company's revenue growth rate was lower than the industry's growth rate, mainly due to the company's lack of product layout in the middle and low price segment. As a result, the company's online share of sweeping robots fell 6.8 pcts year on year, and offline retail share decreased 5.7 pct year on year; ② Smart household appliances: 2023 revenue of 7.66 billion yuan, +4.8% year on year, with additional brand revenue $7.27 billion, +5.2% YoY. In 2024, Q1 achieved revenue of 3.47 billion yuan, +7.4% year on year, net profit to mother of 30 billion yuan, -8.7% year on year, net profit after deducting non-return to mother of 290 million yuan, +0.3% year on year, and returned to positive growth.
Cost increases & cost investment increases, profit margins are under pressure
In 2023, the company's gross sales margin was 47.5%, -4.1pct year on year, and the net sales profit margin was 3.9%, down 7.2 pct year on year. The decline in gross margin was mainly due to the introduction of new features in Covos and Tianke brand products, leading to an increase in raw material costs and a decrease in the average product price. The company's expense ratio for the 2023 period was 43.1%, +4.6pct. Among them, the sales/management/R&D/finance expenses rates were 34.2%/3.8%/5.3%/-0.2%, respectively, and +4.0/-0.5/+0.6pct, respectively. The significant increase in sales expenses was mainly due to an increase in after-sales maintenance costs and marketing and promotion expenses. 2024Q1's gross sales margin was 47.2%, -3.5pct year on year, net sales margin 8.6pct, year-on-year -1.5pct, period expense ratio 37.9%, year-on-year -2.8pct. Compared with the narrowing decline in the company's profit margin in 2023, profitability began to recover.
Pain points are broken down one by one. Industry leaders are expected to reverse the bottom after experiencing a two-year downturn. The company will actively adjust its business strategy and make improvements to the pain points faced by the company. As an industry leader, it is expected to usher in a bottom reversal: ① In response to the lack of products in the middle and low price segment of sweeping robots, the company began to actively adjust in the second half of 2023. The price range for the T30 new sweeping robot launched in 2024 is in the 3500-4000 yuan range. This range is the price range with the highest share of sales in the industry. It is expected to seize the industry's incremental opportunities again. ② In response to the problem of the floor washer price war, on the one hand, the company stepped up efforts to reduce costs, and on the other hand, introduced differentiated solutions through innovation to occupy a high position in the market and reduce the adverse effects of the price war. ③ In response to the problem of poor overseas market expansion, the company set up an overseas headquarters in Singapore in 2023 to strengthen global coverage. In 2023, the overseas business revenue of the Covos brand increased 20.1% year on year, and the overseas business revenue of the Tianke brand increased by 40.5% year on year, accounting for 38.8% and 42.1% of their respective revenue, respectively, an increase of 7.0 /10.6 pct over the previous year.
Profit forecast and investment rating: We expect the company's net profit to be 11.3/14.3/1.70 billion yuan in 2024-2026. The current market value corresponds to PE of 26/20/17 times, covered for the first time, giving it a “buy” rating.
Risk warning: New product sales fall short of expectations, industry competition intensifies, overseas expansion falls short of expectations, etc.