Key points of investment:
After more than 20 years of development, the company has grown into a leading service robot+smart household appliances
Since its establishment in 1998, Covos has always been committed to technology research and category innovation. After more than 20 years of development, the company has become a leader in the global household service robot and smart household appliances industry, and has successfully built a two-wheel drive business model for Covos brand service robots and Tianke brand smart household appliances. According to iFind data, in 2023, service robots contributed about 50% of the company's revenue, small cleaning appliances contributed 49% of the company's revenue, and other businesses accounted for 1%.
The growth rate of the robot vacuum cleaner industry rebounded steadily, with 24Q1 sales increasing by more than 3 percent year-on-year. According to Aowei Cloud data, online channel sweeper sales were +30%/16%/60%, respectively, and sales volume were +27%/18%/53% year over year, respectively. Even in February, which had a high base due to the Spring Festival mistake, industry sales and sales still achieved a year-on-year increase of more than +15%. This may indicate that after several years of consumer education, users' acceptance of sweeping robots increased dramatically and entered the volume stage again.
With the launch of this new product, the market share of Covos sweeping robots began to rise in 2023. Due to the lack of new cost-cutting products in the middle and low price segment, Covos significantly lost its market share. The market share of sales fell from the highest point of 44% in 23 years to 22% in February '24, and the lowest sales market share was only 19%; with the launch of the T30 series products, the company achieved a significant increase in market share in March, with sales and sales market share reaching 31% and 26% respectively. We believe that the company has strong competitiveness on the marketing side. The core reason for the decline in market share in '23 was product strategy mistakes. As the product line is gradually completed, a rebound in market share will be a probable event.
Although the price war in the floor washer industry continues, the market share of Tianke has gradually stabilized due to the relatively low entry threshold and continued high growth in industry demand. In recent years, this also led to a significant drop in the average price in the industry in 2023. According to Aowei Cloud data, the average online price of the floor washer industry fell from 2,761 yuan in January 2023 to 2,044 yuan in March 2024, with a cumulative drop of 26%. The price war also had a negative impact on the market share and profitability of the industry leader Tianke. Although the current price war in the industry continues, Tianke's sales market share has gradually stabilized at around 40%, which may mean that the impact of the price war on Tianke has decreased.
Profit forecasting and investment advice
We expect the company to achieve net profit of 13.8/16.9/1.98 billion yuan in 2024-2026, respectively, +126%/22%/17% year-on-year. We used the comparable company valuation method. According to iFind's consistent profit forecast, the average PE value of comparable companies in 2024-2025 was 25/22.1 times, respectively, higher than 20.7/17 times that of the company. Considering that the company is actively making strategic adjustments and expanding domestic, offline and overseas markets, the performance is expected to reverse, cover for the first time, and give a “buy” rating.
Risk warning
Industry demand falls short of expectations, competition deteriorates, trade policy changes, etc.