Incident: On August 29, 2024, the company released its 2024 mid-year report. In 2024H1, the company achieved operating income of 2.203 billion yuan, a year-on-year decrease of 6%; realized net profit due to mother 0.024 billion yuan, a year-on-year decrease of 44%; realized net profit deducted from non-mother - 0.007 billion yuan, which turned negative year-on-year.

Key points of investment:

2024Q2 puts pressure on the company's performance. Aojiahua 2024H1 achieved operating income of 2.203 billion yuan, a year-on-year decrease of 6%; realized net profit of 0.024 billion yuan, a year-on-year decrease of 44%; realized net profit without deduction of -0.007 billion yuan, which turned negative year-on-year. Among them, in the Q2 single quarter, the company achieved operating income of 1.151 billion yuan, a year-on-year decrease of 1%; realized net profit of 0.019 billion yuan, a year-on-year decrease of 19%; and realized net profit without deduction of 0.003 billion yuan, a year-on-year decrease of 88%. In the first half of 2024, the international market was affected by geopolitics and high inflation, and consumer demand was still weak. At the same time, the company's performance was under pressure due to factors such as a sharp decline in government subsidies in the first half of the year and preparations for asset impairment.

The massage chair sector is under pressure, and revenue from the small massage appliances and health environment sectors increased by single digits over the same period last year. In the health massage sector, in the domestic market, while the main brand Aojiahua continues to expand its leading edge in massage chair products, small massage appliances expand its influence through joint names and other methods to form an intelligent massage product matrix that can meet the multi-level needs of various consumer groups, achieve complementarity and conduction between categories, and further enhance the competitive advantage of main brands in the domestic health and massage market. In the international market, the company has laid out multiple independent brands in several core markets and has become a leading local brand through localized operations. In the first half of the year, the massage chair and massage appliances segment achieved revenue of 0.988 and 0.641 billion yuan respectively, -8.99% and +4.22% year-on-year respectively. In the health environment sector, the Dr. Hu brand is committed to building a benchmark in the field of respiratory and environmental health in China, covering healthy environmental products such as fresh air systems and air purifiers. In the first half of the year, the sector achieved revenue of 0.299 billion yuan, +7.55% over the same period last year. By region, in the first half of the year, the company's domestic sales achieved revenue of 0.737 billion yuan, a year-on-year decrease of 6.84%, while export sales achieved revenue of 1.386 billion yuan, a year-on-year decrease of 7.09%.

24Q2 gross margin improved year over year. 2024Q2 achieved a gross profit margin of 38.13%, up 1.94 pcts year over year. In terms of period expenses, 24Q2 sales expenses/management expenses ratios were +0.21/-0.03 pcts year-on-year to 22.95% and 8.10%, respectively.

The financial expense ratio was -0.11%, up 5.48 pcts year over year, mainly due to high exchange earnings in the same period last year. In the first half of the year, the company calculated an impairment reserve amount of 11.8972 million yuan for various assets, which had a certain impact on profits. The net profit margin for 24Q2 was 1.65%, down 0.96 pcts year over year.

The profit forecast was lowered and the “gain” rating was maintained. Currently, demand for non-essential consumer goods such as health care and massage is still weak in domestic and foreign markets. We have lowered our profit forecast and expect to achieve net profit of 0.084/0.134/0.176 billion yuan in 2024-2026 (previous values were 0.17, 0.229, and 0.297 billion yuan), respectively, with a year-on-year difference of -18.5%, +59.4%, and +30.9%. We use Pekang and Feike Electric as comparable companies. The average PEG for 24 years was 0.97, and the company's PEG for 24 was 0.90. Corresponding to the current market value, there is room for an 8% increase in market value, maintaining an “increase” investment rating.

Risk warning: risk of raw material price fluctuations, risk of exchange rate fluctuations; risk of terminal market demand falling short of expectations.