The company released its 2024 mid-year report. Affected by rising shipping rates, 24Q2 profit performance is low: 24H1 achieved revenue of 3.721 billion yuan, up 40.7% year on year; realized net profit of 0.172 billion yuan, down 7.7% year on year; after deducting non-net profit 0.16 billion yuan, down 25.0% year on year; of these, Q2 revenue was 1.879 billion yuan, up 36.5% year on year, and net profit to mother was 0.071 billion yuan, down 27.9 billion year on year %, after deducting non-net profit of 0.064 billion yuan, a year-on-year decrease of 50.4%.

The driving force of new and sub-new products has increased, new platforms have been actively expanded, growth in North America has begun to accelerate, and the household category is growing brilliantly:

By region, 24H1's revenue in Europe/North America/Japan/other regions was 22.79/1.341/0.03/0.022 billion yuan, respectively, +41.2%/+41.1%/+30.6%/+39.4%, respectively. The growth of the 24H1 North American market accelerated compared to 2023, thanks to 24H1's focus on launching a large number of new products in the US market; the US overseas warehouse layout optimization formed a 5-warehouse layout covering the East, West, South America, North America, and China, and further improved the market competitiveness of products by optimizing final transportation strategies, including increasing spontaneity ratio and optimizing the shipping mix; at the same time, the company actively developed new platforms such as Temu, Target, and Tik Tok Shop to drive sales growth in the North American region.

By channel, 24H1's B2C/B2B channels achieved revenue of 3.177/0.495 billion yuan respectively, +48.8%/+5.7% year-on-year, respectively. Amazon still contributed the main revenue source for B2C channels. 24H1 Amazon platform revenue was 2.538 billion yuan, +42.7% year over year; 24H1 OTTO/independent site revenue was 0.185/0.11 billion yuan, respectively, +97.1%/+91.3% year over year, respectively. 24H1's online B2B and offline B2B revenue was 0.288/0.207 billion yuan respectively, +0.5%/+13.7% year-on-year, respectively. While continuing to increase the market share of the Amazon platform, the company continues to expand traffic opportunities on emerging platforms such as Temu and SHEIN, as well as the Hobby Lobby offline incremental market to build European offline teams to cultivate KA opportunities. After Temu opened semi-hosting in March 2024, after the company opened its website in the US as the first batch of semi-managed sellers, the company seized the initial traffic dividends of the platform with its influence on self-operated overseas pallets, last-end fulfillment capabilities, and product competitiveness, providing a solid foundation for the European site to develop in the second half of the year.

By category, 24H1's furniture/home/pet/sports outdoor series revenue was 18.96/1.335/0.309/0.133 billion yuan, respectively, +39.4%/+50.2%/+37.3%/+3.4% compared with the same period last year. 2024H1 has stepped up its efforts to launch new products, and the contribution of new products to main business revenue has increased compared to the same period in previous years. The second new product, the new product launched in 2023, showed strong market performance in the first half of this year. Sales achieved rapid growth, and became the core force driving revenue growth in the main business.

Shipping costs have increased dramatically, and combined marketing and price reduction efforts have increased slightly, putting pressure on profits. 24H1's gross margin was 34.9%, -1.5pct yoy, of which 24Q2 -2.2pct yoy. 24H1's sales/management/R&D/finance cost rates were 24.7%/3.6%/0.9%/0.8%, respectively, +1.8pct/-0.5pct/-0.3pct/+2.5pct, respectively, of which 24Q2 was +2.0pct/-0.9pct/-0.4pct/+4.2pct, respectively. Affected by the Red Sea incident, shipping costs increased year-on-year, and the scale of business development expanded self-operated and tripartite overseas warehousing services, leading to an increase in warehousing costs. The company's market share strategy increased, and the average unit price of product sales decreased year-on-year, and marketing expenses for new product promotion increased. At the same time, due to the high exchange base, the company's financial expense ratio increased year-on-year. 24H1's net profit margin was 4.6%, 2.4 pct year on year, of which 24Q2 was 3.4 pct year on year.

Zhiou Technology has established comprehensive competitiveness in brands, products and supply chains, established all-round first-mover barrier advantages, vertical access to the industrial chain, localized operation+Internet content marketing, digital operation, insight into local consumer preferences, reverse promotion of new product development, standardized R&D and design processes, and provided cost-effective products; strictly controlled the supply chain, built and perfected its own warehousing and logistics system, and built transportation efficiency and cost advantages. The company has achieved a diversified market development layout in Europe with leading comprehensive competitiveness. In the future, it will continue to expand overseas multiple platforms, independent sites, and multiple countries and regions through multiple channels and multiple regional reuse of brands and supply chains, and has sufficient momentum for endogenous growth. In view of freight rate fluctuations due to supply chain shocks, etc., the return profit for 2024-2026 was lowered to 0.4/0.57/0.728 billion yuan (previous value: 0.501/0.618/0.751 billion yuan), maintaining the 2025-2026 profit forecast of 100 million yuan, -3.2%/+42.5%/+27.6%, respectively. The corresponding PE was 17X/12X/9X. The company's profit in 2024 was mainly disrupted by external circumstances such as sea freight rates. If freight rates drop in the later stages, the company's profit flexibility is expected to be released. According to our estimates, the company's PEG is 0.5X; according to Wind's unanimous forecast, the average PEG of companies Anke Innovation, Saiwei Era, Huakai Yibai, and Jihong shares is 0.6X. Referring to the industry average PEG, the target PE of 21X was given to the EU, with a return profit of 0.4 billion yuan in 2024, corresponding to a target market value of 8.5 billion yuan, with an upward margin of 26% compared to the current 26%, maintaining the “buy” rating!

Risk warning: the risk of large price fluctuations, the risk of exchange rate fluctuations, the risk of increased market competition, the risk of changes in the operating rules of overseas e-commerce platforms, the risk of changes in overseas tariffs, and the risk of weakening overseas demand.