Photo source: Visual China

Blue Whale Finance Correspondent Zhang Yanyi Wang Jianwen

After more than three years of continuous decline in stock prices, Covos's stock price “bottomed out and rebounded” in 2024.

From April 17 to May 13 this year, in less than a month, Covos's stock price nearly doubled. However, behind this wave of stock price recovery, Covos's performance is not very good. Covos has been in a vortex of increasing revenue and not increasing profit for two consecutive years.

Since May 14, Covos's short stock boom has come to an end.

My son took over, an old man in his sixties started a business again, and Sweepers came into being

Qian Dongqi, founder of Covos, was born in 1958. At age 40, he founded Taiyikai Electric, the predecessor of Covos, which specializes in OEM for vacuum products. From foundry to branding, Covos's counterattack was surprising. On May 28, 2018, Covos, which had been in business for nearly 20 years, rang on the Shanghai Stock Exchange. At the forefront of the group of executives was not Qian Dongqi, the founder of Covos, who was 60 years old at the time, but his son Qian Cheng.

After going public, Qian Dongqi chose to gradually decentralize his mature business and hand over his mature business to Qian Cheng. In October 2018, Qian Cheng began to be the general manager of the Covos Household Robotics Division. In October 2021, he was transferred to CEO of Covos Service Robotics. As for Qian Dongqi, after his shift, he chose to spend his main energy on developing the new brand “Tianke” under Covos. Tianke's main products include smart floor scrubbers, smart cooking machines, smart hairdressing combs, smart eye beauty devices, smart vacuum cleaners, smart air purifiers, etc.

In 2021, Tianke began to be an important support for explosive growth in performance. Covos's “two-wheel” driving strategy worked. Covos achieved operating revenue of 13.086 billion yuan, an increase of 80.90% year on year; net profit to mother was 2,010 billion yuan, up 213.51% year on year. By project, Covos achieved revenue of 6.710 billion yuan, accounting for 51.28% of total revenue; Tianko's revenue was 5.137 billion yuan, accounting for 39.25% of total revenue, a strong increase of 307.97%. At the same time, gross margin increased by 8.55 percentage points, and gross margin was 51.41%.

While fundamentals improved, Covos's stock price reached an all-time high in 2021. On July 15, 2021, Covos's stock price closed at 244.64 yuan/share, and the market capitalization also exceeded 140 billion yuan. The company was once known as “sweeping the floor”. Covos also paid out the highest dividend of 631 million yuan in 2021.

After the high stock price, on December 22, 2021, Qian Cheng announced that it would reduce its holdings of the company's shares by 0.46%. At this point, it is only about 7 months since its stock ban was lifted. On December 28, Qian Cheng's holdings reduction was completed, and a total of about 359 million yuan was cashed out. The main body of this holdings reduction is Ever Group under Qian Cheng's control. After the reduction was completed, Qian Cheng's shares of the company fell from 14.98% to 14.52%.

However, it is worth noting that hidden worries are hidden behind the bright moment. The 2020 inventory price reduction preparation was 92.8844 million yuan, accounting for 7.23% of the 2020 inventory. The 2019 inventory price reduction preparation was only 31.42,100 yuan, accounting for only 3.14% of the 2019 inventory. The increase in the ratio of preparations for price drops for inventory products may also mean that Covos is not optimistic about the company's sales expectations for robot vacuum products.

Increased capital operation and expanded production with 2.2 billion dollars of own capital

2021 is a year of special significance for Covos. This year was not only a high point in the company's performance growth rate and stock price, but also a period of concentration in the company's capital operations.

In April 2021, Covos issued an announcement stating that it will issue 1,040 billion yuan of convertible bonds. The term of this bond is 6 years, that is, from November 2021 to November 2027. The initial conversion price for convertible bonds is 178.44 yuan/share.

According to the announcement, Covos is issuing convertible bonds this time, on the one hand, to increase technology research and development, and on the other hand, to speed up the progress of going overseas. Specifically, of the 1,040 million yuan raised in this bond, 655 million yuan will be used for multi-intelligent robot technology innovation projects, including the establishment of an iterative and new category innovation laboratory for household service robots, the establishment of multi-technology platforms for outdoor robots and indoor large-scene robots, and the establishment of voice and visual AI training laboratories. Through the above projects, Covos wants to improve the intelligence and user experience of products such as sweepers, and explore more usage scenarios for service robots.

In addition, 305 million yuan will be used for the international operation project of Tianko smart household appliances, and 80 million yuan will be used for the Covos brand service robot global digital platform project. Both projects are aimed at promoting the overseas process of products owned by Covos.

In addition to issuing convertible bonds to ask for money from the market, in 2021, Covos also spent a total of 2.2 billion yuan to expand production capacity, all funded from its own or self-funded sources.

In October 2021, Covos announced that it will build a high-end smart household appliances manufacturing center project with a total investment of about 1 billion yuan. After completion, it can provide 12 million units of production capacity per year for products such as Tianke smart floor washers, smart cooking machines, smart vacuum cleaners, smart hair dryers, and smart beauty devices.

In December 2021, Covos issued another announcement stating that its subsidiary Taiding New Energy will build a polymer lithium-ion battery project with an annual output of 2 GWH, with a total investment of about 1.2 billion yuan. This project can provide the company with battery products for sweepers, floor scrubbers, etc.

Covos also attaches great importance to this lithium battery project. In December 2023, Li Qianhuan, general manager of Taiding New Energy, was selected as a non-independent director of Covos. He is also currently the only director of the company's supply chain subsidiary among the six non-sole directors of Covos.

Price reduction promotions are still in a vortex of increasing revenue and not increasing profit

Since taking over Covos's robot vacuum business, Qian Cheng proposed a nine-character strategy of “globalization, multiple categories, and high technology”, and pushed Covos out of the service robot OEM business and the low-end sweeper robot market in 2019. Since then, Covos robot vacuum cleaners have focused on mid-range and high-end products.

Behind the highlights of 2021, Covos's inventory has soared from 1,285 billion yuan in 2020 to 2,417 billion yuan. As a last resort, Covos put a “price reduction promotion” on the agenda. The company lowered the price of the high-experience popular Fuwan series, and the price of Fuwan 2.0 products was adjusted from 3000+ to 2000+. At the same time, the company's efforts on the sales side have led to a surge in sales expenses. In 2022, Covos's sales expenses were 4.623 billion yuan, an increase of 1,386 billion yuan over the previous year.

The surge in sales expenses has eaten up some of its profits to a certain extent. Starting in 2022, Covos fell into a vortex of increasing revenue and not increasing profit.

In 2022 and 2023, Covos's revenue was $15.325 billion and $15.502 billion respectively; net profit to mother was $1,698 million and $612 million respectively. In the first quarter of 2024, the company's revenue was 3.474 billion yuan, up 7.35% year on year; net profit to mother was 2.98%, down 8.71% year on year, and the downward trend in net profit continued. The company's consolidated gross margin also fell from 51.61% in 2022 to 47.50% in 2023.

In 2023, Covos' sales expenses continued to increase to 5.297 billion yuan, an increase of 14.60% over the previous year, accounting for 34.17% of total revenue. Among them, the projects that account for the largest share are advertising, marketing and platform service fees, totaling 3.80 billion yuan. Compared with competing Stone Technology, Covos's sales expenses are relatively high. In 2023, Stone Technology's sales expenses were 1,817 billion yuan, accounting for only 21.00% of revenue.

Compared to Stone Technology, in addition to spending more on advertising and marketing, Covos also needs to spend a lot of extra money on offline business. Since its inception in traditional manufacturing, Covos has always maintained a focus on offline business. The annual report shows that in 2023, the company's offline sales outlets have exceeded 2,500, and they are mainly directly managed. However, Stone Technology has only opened offline experience stores in some core city business districts. As a result, in 2023, the leasing and storage expenses of Covos's sales expenses reached 206 million yuan, while the total leasing and storage expenses of Stone Technology during the same period were only 21 million yuan.

Strive overseas to break the game

In order to change the situation where revenue growth does not increase profits, Covos is also seeking to break the game. Going overseas is an important path for Covos's development.

Compared with the domestic market, there is also a large demand for clean appliances in the international market. As an established player in the industry, Covos began its path to globalization very early. As early as 2012, Covos established branches in the US, Germany, etc. From 2015 to 2018, Qian Cheng was also responsible for the company's international division business.

Overall, however, Covos' overseas business did not grow fast in the early days. From 2019 to 2022, the company's overseas revenue growth rates were -13.52%, 34.95%, 39.63%, and 9.92% respectively, all lower than the company's domestic business growth rate during the same period, and lower than the overseas business revenue growth rate of Stone Technology during the same period. According to the China Merchants Securities Research Report, Covos is mainly expanding overseas markets through B2C e-commerce such as Amazon and by building its own offline direct sales channels. Although the self-built channels are stable, progress is relatively slow.

In order to accelerate the layout of overseas business, part of the 1,040 billion yuan convertible bonds issued by Covos in 2021 was used for the international operation project of Add Kovos smart home appliances and the global digital platform project for Covos brand service robots.

Among them, the international operation project for Tianko smart household appliances is mainly aimed at projects such as overseas warehousing, overseas marketing, overseas information systems, expansion of overseas teams, and overseas after-sales maintenance centers. The Covos brand service robot global digital platform project mainly includes two projects: a global official website direct management platform and a digital operation platform.

In 2023, the growth rate of Covos's overseas business began to overtake the growth rate of domestic business. According to the annual report, the company's overseas business revenue in 2023 was 6.522 billion yuan, a growth rate of 25.76%. Overseas business also accounted for 42.07% of total business.

In November 2023, Covos opened an overseas business headquarters office in Singapore to further accelerate the process of going overseas. Qian Cheng said, “The Singapore office will provide strong support for Covos to further expand the Southeast Asian and global markets and enhance competitiveness.”