Conclusions and recommendations:
Company performance: The company released its 2024 quarterly report. In 24Q1, it achieved revenue of 106.48 billion yuan, YOY +10.2%, recorded net profit of 900 billion yuan, YOY +11.9%, net profit of 9.24 billion yuan after deduction, and YOY +20.4%, in line with expectations. Non-recurring profits and losses are mainly due to changes in fair value.
The smart home business grew steadily, and the robotics business declined year on year: the company's main smart home business Q1 revenue increased 11% year on year. We estimate that it was mainly driven by the company's vigorous development of new channels and new markets, driving overseas e-commerce retail sales to increase by about 60% year on year, and private brands growing more than 50% year on year in Brazil, Egypt, Malaysia and the Middle East; commercial and industrial solutions business revenue increased 9% year on year, with smart building technology increasing 6% year on year, mainly due to changes in heat pump subsidy policies in some countries and falling European gas prices. At 23%, the robotics and automation business declined by 12% year on year, mainly due to the suspension of domestic car makers' expansion plans and the adjustment of overseas car companies' product strategies.
The Q1 comprehensive gross margin rebounded significantly, and the cost ratio increased due to market development and exchange rate fluctuations: the company's 24Q1 comprehensive gross margin was 27.6%, an increase of 3.3 percentage points over the previous year. It is estimated that it mainly benefited from changes in product structure and the depreciation of the RMB. The cost rate for the period was 17%, an increase of 2.7 percentage points over the previous year. It was mainly due to an increase in sales expenses and management expenses due to overseas market development. In addition, exchange rate fluctuations also led to exchange losses, which affected the financial expense ratio.
Profit forecast and investment advice: Looking forward to the future, the country's promotion of the home appliance trade-in policy will help home appliance consumption grow steadily, the company will continue to benefit, and overseas market development will also help increase overseas revenue. Furthermore, the 2024 employee stock ownership plan is tied to the team to help improve profit quality. We expect the company's net profit for 2024-2026 to be 39.06 billion yuan, 44.05 billion yuan, and 49.11 billion yuan respectively; YOY +15.8%, +12.8%, +11.5%, EPS is 5.6 yuan, 6.3 yuan, and 7.0 yuan respectively; the A-share P/E is 12X, 11X, and 10X respectively. The current valuation is reasonable, and we maintain the “buy” investment proposal.
Increased risk: sharp decline in demand; rising raw material prices; exchange rate fluctuations; diluted H shares, etc.