Description of the event

The company disclosed a quarterly report: In Q1 of 2024, the company achieved operating income of 401 million yuan, a year-on-year increase of 3.86%, achieved net profit of 63 million yuan, an increase of 67.31% over the previous year, and achieved net profit of 61 million yuan without return to mother, an increase of 136.04% over the previous year.

Incident comments

Under a low base, overseas revenue performance is expected to remain flat. The domestic market ushered in growth, and overall revenue growth rebounded slightly. The company's Q1 revenue in 2024 reached 401 million yuan, up 3.86% year on year, and rebounded from the lower base for the same period last year. Looking at the external environment, global economic growth momentum was insufficient during the same period last year, consumer demand was weak, and the company's domestic and foreign business orders were reduced or postponed. Consumption recovered this year. Internally, in 2023, the company optimized its product portfolio through differentiated means such as product innovation and product customization to meet the needs and changes of different markets, and actively expand domestic and foreign market share. Looking at the subregion, the share of overseas markets is expected to remain around 55%. The overall overseas revenue performance in Q1 2024 is expected to be the same as in the past. The Korean market's performance in the first quarter declined slightly due to the impact of order schedules, etc. It is expected that this year will usher in an improvement with the release of new products. The US market began to improve in Q3 2023, and is expected to grow by about 30%. The division of overseas markets is expected to be adjusted in 2024, separating the European market from the Southeast Asian market; the domestic market Influenced by the Spring Festival, the performance in the first quarter was good, with an expected increase of more than 10%. Online performance is better than offline. Among them, the Douyin platform is expected to grow at a higher rate.

The results of cost reduction and efficiency were remarkable, and the net profit growth rate was impressive. The company's gross margin in Q1 2024 reached 35.88%, an increase of 6.60 pct over the previous year. From the cost side, the company itself actively improved raw materials, supply chain costs, and processing costs, etc., and externally, the exchange rate influence contributed to a certain extent; from the sales side, the company was more profitable in the US/European market while growing faster. Domestic and offline performance was good, and some products had strong profitability. On the cost side, in 2024, the company's sales, management and R&D expenses reached 0.39, 0.21, and 20 million yuan, respectively, with year-on-year changes of -7.83%, 22.52%, and 16.88% year-on-year. The corresponding rates were -1.24, 0.78, and 0.56pct, respectively. The sales expenses dropped significantly year-on-year, mainly due to the company's accurate investment of sales expenses, which decreased during the same period in the first quarter; the company's Q1 financial expenses fell by 13 million yuan year on year, or benefited from the influence of foreign exchange rates. Combining the above main factors, the company's net profit margin for Q1 in 2024 reached 15.66%, up 5.94 pcts year on year, and net profit to mother reached 63 million yuan, up 67.31% year on year, achieving impressive performance.

Investment advice: As a leader in the domestic massage chair market and an important manufacturer of massage chairs in the world, the company has an advantageous position in the industry. The company has accumulated a complete massage chair R&D, industrial design and quality control system. The domestic market already has a good brand recognition foundation. The cooperative base with major overseas customers is stable and is expected to drive new customer growth, so it gradually stabilizes as the demand side gradually recovers. The company actively adjusts its product structure, strengthens cost reduction and efficiency, optimizes operational efficiency and improves profitability while actively developing market share. It is expected that the company will usher in relatively rapid restorative growth. The company's net profit for 2024-2026 is estimated to be $241, 2.87, and 339 million yuan, respectively, corresponding to PE of 14.44, 12.16, and 10.27 times, maintaining a “buy” rating.

Risk warning

1. Demand recovery is slow due to fluctuations in the economic situation;

2. Revenue adjustments due to fluctuations in orders from major customers.