2Q24 results are in line with our expectations

The company announced 1H24 results: 1H24's revenue was 4.416 billion yuan, +30.9% YoY; net profit to mother was 1.121 billion yuan, +51.6% YoY. Corresponding to 2Q24 revenue of 2.575 billion yuan, +16.3% YoY; net profit to mother of 0.722 billion yuan, +34.9% YoY. The company's 2Q24 results were in line with our expectations.

Development trends

Overseas channels continue to be deployed, and the domestic sales share remains stable. Stone sweepers use strong brand power and outstanding product strength to accelerate the expansion of overseas channels. 1) Eurasian market: The company strengthened its channel layout through actions such as adding nationalized customers, refining dealer operations, and building its own channel dealers in some regions to enter more markets that were originally weak. We estimate that 2Q Europe/Asia Pacific market revenue achieved a year-on-year increase of more than double digits at a higher base level. 2) US market: Stone expands offline channels. According to Stone Technology's US official website, it has now entered more than 1,400 Target stores and 695 BestBuy stores; at the same time, the online market has maintained a relatively rapid growth rate. We estimate 2Q US market revenue of more than 50% year over year. 3) The 2Q sweeper industry is booming in the domestic market. According to AVC data, traditional e-commerce sales of 2Q24 sweepers were +17% year-on-year, with a 27% share of stone ranking first.

Profit levels remain high, and subsidiaries benefit from tax rebates. The company's 2Q24 gross margin was +0.2ppt to 51.9% year-on-year, and the gross margin remained stable against the backdrop of increased competition in overseas markets. Rate side:

2Q24 sales/management/R&D/finance rates were +0.1/+0.6/+1.4/-0.6ppt. In June 2024, the company announced that the subsidiary passed the certification of a key software enterprise. In 2023, the 2Q company received a tax refund of 0.154 billion yuan as non-recurring profit and loss, while the tax rebate of 57.76 million yuan in the same period last year was included in recurring profit and loss. There was a difference in caliber. There was a difference in caliber. After the calibration was restored, the company deducted non-net profit +18% compared to the same period. In 2Q24, the company's net interest rate to mother was 28.0% (+3.9ppt year on year), and the net profit margin of non-return to mother after restoration of caliber was 20.2% (+0.3ppt).

The highlights of new products in the second half of the year were outstanding, solving consumers' pain points. At the end of August, Stone released the P20 Pro, a new sweeper in the price range of about 4,000 yuan, and the P10Spure, a new cost-effective sweeper in the 2000-3000 yuan price range. At the same time, Stone also recently released a new product of the Q1 series mini washing and drying machine/mini washing machine, continuing to strengthen the washing machine circuit. The P20 Pro pioneered a zero-hair entanglement system and chassis lift (obstacle crossing height 4 cm). New Youshang products at the same price during the same period focused on iterative supplementation functions. The P10S Pure made up for the gap in Stone's new product layout in the 2000-3000 yuan price range. Previously, Xiaomi enjoyed many dividends in this relatively empty price range. We think the P10S Pure is more cost-effective than the Xiaomi M30S.

Profit forecasting and valuation

We believe that the recent overseas competition pattern has disrupted or partially affected the company's future profit margin level, reducing 2024/2025 net profit by 4%/7% to 2.562/3.02 billion yuan. The current stock price corresponds to 15.8 times/13.4 times P/E for 2024/2025. Due to the reduction in profit forecasts compounded by the downturn in the sector's valuation center, our target price after reduction was 16% to 300 yuan, corresponding to 21.5 times/18.2 times P/E in 2024/2025, with 36% upside compared to the current stock price.

risks

Domestic and overseas market demand fell short of expectations; profitability declined.