Incident: The company announced that in Q1 2024, it achieved revenue of 636 million yuan, a year-on-year increase of 48.81%, a net profit of 45 million yuan, a year-on-year increase of 178.56%, turning a loss into a win; in 2023, it achieved revenue of 0.3 million yuan and net profit to mother of -175 million.
Comment:
Increased demand in the garden machinery industry in 2024 will welcome the inventory replenishment cycle. Affected by macroeconomics, lawnmowers in Europe and the US have always been in the inventory removal stage. By the end of '23, the inventory of downstream channel vendors was at a historically low level. In particular, the extent of inventory removal from the company's North American customers was even more obvious. The company's revenue in 2023 was $93 million, down 37% year on year. In Q1 '24, revenue was 636 million, which is more than half of last year's revenue. By region, revenue in North America increased dramatically.
Net profit for Q1 2024 was $45 million, turning a loss into a profit. Demand has recovered since this year, and costs such as shipping costs have declined, leading to an increase in gross margin. The gross profit margin in Q1 2024 was 18.36%, an increase of 6.9pct over the full year of 2023. Profitability increased significantly, and it also turned a loss into a profit in Q1 2024.
The cost-side control effect was good. Sales expenses, management expenses, and financial expenses in Q24 were 0.17/0.16/0.04 billion yuan respectively, all down from the previous period. Furthermore, shipping charges have now returned to normal, and the cost side has been reduced, leading to a significant increase in gross margin. Gross profit margin is expected to remain high throughout the year.
Binding key customers such as Home Depot and Walmart, new product launch+capacity expansion helped the company grow revenue. The ride-on lawnmower independently developed by the company is very popular at Home Depot. Currently, 7 products are sold online and offline simultaneously, and sales showed a high growth trend in Q1 in '24.
In terms of production capacity, construction of the company's Mexican plant has already started. It is currently speeding up construction and opening up the ceiling of production capacity restrictions. Coupled with the launch of new products this year, performance is expected to continue to grow.
Investment advice: We expect the company's revenue in 2024-2026 to be RMB 15.2/22.3/3.08 billion, respectively, with a year-on-year growth rate of 64%/47%/38%. Net profit attributable to mother was RMB 0.91/1.58/ 248 million, respectively, up 152%/74%/58% year-on-year. EPS is 0.57/0.98/1.55 yuan, and the current stock price corresponding PE is 99/40/26. Give it an “gain” rating.
Risk warning: Demand fell short of expectations due to the Fed's interest rate hike; shipping rates have risen sharply again.