Investment events
Covos publishes its 2023 Annual Report and 2024 Quarterly Report. For the full year of 2023, the company achieved operating income of 15.50 billion yuan (+1.2% YoY), net profit to mother of 610 million yuan (-64.0% YoY), and net profit of 480 million yuan (-70.3% YoY) after deducting net income. 2024Q1 achieved operating income of 3.47 billion yuan (+7.4% YoY), net profit to mother of 300 million yuan (-8.7% YoY), and net profit of 290 million yuan after deducting net income from mother (+0.3% YoY).
Key points of investment
On the revenue side, domestic business is expected to continue to recover. Overseas business continued to expand at 8.98 billion yuan (-11.4% year over year). Among them, Covos's domestic business was about -12% year-on-year, and the domestic business was about -11% year-on-year, or mainly due to: 1) the lack of cost-effective new domestic sweepers and robotic sweeper products; 2) the price war for floor washers. Overseas business in '23 was 6.52 billion yuan (+25.8% YoY), accounting for an increase of 34% to 42%, including +40.5% in overseas sales and +20.1% year-on-year for Covos overseas. The 24Q1 company's revenue was +7% year-on-year, or mainly benefited from new domestic sweepers contributing part of the revenue and overseas business expansion.
Looking ahead to 24 years, the company will make up for robotic arm shortcomings and cost-effective sweeper products. Floor scrubbers account for a stable price range of less than 2,000 yuan, and the pressure to reduce prices has been reduced. With overseas additions, it is possible to expand offline target stores in North America and actively explore new markets such as China, Europe, Russia, and the Middle East. The Covos brand relies on the layout of overseas sales channels, and the company's overseas business is expected to continue to make breakthroughs.
Profitability is expected to gradually improve
The 24Q1 net profit margin was 8.6%, -1.5pct year on year, which was significantly better than market expectations. The company's gross margin in '23 was 4.1pct to 47.5% year-on-year, mainly affected by price cuts for old sweepers and the price war for floor washers. 24Q1 gross margin was -3.5pct year on year. It is expected that the year-on-year price reduction for additional floor washers will still have a certain impact. We believe that as the company's new high-margin sweeper products enter the official sales stage, the profit margin of domestic sweepers is expected to improve markedly; the average price of floor washers gradually enters the low base range+product matrix is improved, and the pressure on gross margin is expected to gradually ease.
Cost-side improvements. The company's 24Q1 sales expense rate/management cost rate/R&D cost rate/financial cost ratio were -1.6pct/-1.3pct/+0.6pct/-0.5pct, respectively. It is expected to mainly benefit from the improvement in the company's investment conversion rate. The new business has a net investment of 300 million yuan in 23 years. As the company's new business product matrix+channel layout continues to improve, it is expected to reduce the drag on the company.
Profit forecasting and valuation
The company's domestic business was gradually repaired, and overseas business continued to expand. We raised our 24-26 performance to 14.3/17.8/2.24 billion yuan (+134%/+25%/+26%, respectively), corresponding to the current stock price PE of 25X/20X/16X, respectively, maintaining a “buy” rating.
Risk warning: New product launches fall short of expectations; increased market competition, etc.