The company's profit exceeded expectations, and an incentive plan was issued. Covos 2024H1 achieved operating income of 6.976 billion yuan, a decrease of 2% year on year; realized net profit of 0.609 billion yuan, up 4% year on year; realized deducted non-net profit of 0.557 billion yuan, up 10% year on year. Q2 In a single quarter, the company achieved operating income of 3.502 billion yuan, a year-on-year decrease of 10%; realized net profit to mother of 0.311 billion yuan, up 21% year on year; realized deducted non-net profit of 0.271 billion yuan, up 23% year on year. The company's revenue fell short of expectations, and profits exceeded our expectations. Covos announced employee stock ownership plans, stock options, and restricted stock incentive plans. The total capital of the employee stock ownership plan is not more than 64.876 million yuan, and the purchase price per share is 20.20 yuan, unlocked in four phases. The target value for each unlocked point in 24-27 years is 4%/7%/10%/12% revenue increase over 23 years, the trigger value is 2%/5%/8%/10%, and the trigger value/target value is unlocked 80%/100%; stock options and restricted stock incentive plans grant 25.0029 million shares. The stock option exercise price is 32.31 yuan/share, and the restricted stock grant price is 20.20 yuan/share, unlocked in four installments. The 24-27 performance assessment target is 2%/5%/8%/10% revenue growth over 23.

Domestic sales are under phased pressure, and overseas growth is impressive. By region, the company's Covos brand service robots achieved revenue of 3.397 billion yuan, -3.07% year-on-year, while Tianko brand smart household appliances achieved revenue of 3.359 billion yuan, +2.42% over the same period last year. The revenue share of the all-in-one products of the Covos brand increased by 9.4pcts to 89.5%, achieving a complete replacement for stand-alone models. Starting in the second half of the year, the company adjusted the product strategy layout, complementing the functional mix and price band layout, and actively promoted cost reduction measures, emphasizing the reuse of platforms, modules and components. The contribution rate of new products reached 54.2%. Its more competitive cost structure promoted a significant increase in the brand's overall gross margin level. The Covos brand continues to explore overseas markets. 24H1 overseas revenue increased 11.3% year on year. Especially in core markets such as Germany and France in Europe, the company closely collaborated through online and offline channels to achieve a two-tier increase in sales performance, and European revenue increased 42.0% year over year. Under downward pressure from the average price of the industry, the Tianko brand actively increased its cost advantage and continued to launch differentiated products. Shipments increased 16.4% year on year to 1.68 million units. Overseas sales also performed well. European revenue increased 66.1% year on year. By strengthening the exposure of branded content already in e-commerce platforms, the online market promoted a 42.4% year-on-year increase in overseas online sales revenue.

Fee control was carried out as scheduled, and gross margin increased. 24H1's sales expense ratio decreased by 2.87 pcts to 29.27% year on year, and the R&D expense ratio increased by 0.93 pcts to 6.39% year on year. The company's sales expenses were well controlled and invested in R&D. The gross margin increased, and it entered a virtuous cycle of operation.

Profit forecasting and investment ratings. The company's net interest rate increased rapidly, domestic sales recovered, and overseas growth was realized. We maintained 24-26 profit forecasts of 1.28/1.57/1.82 billion yuan, respectively, +109%/23%/16% year-on-year, and corresponding PE was 18/15/13 times, respectively, maintaining a “buy” rating.

Risk warning: Risk of fluctuations in raw material prices; the penetration rate of sweeper robots and floor washing machine products falls short of expectations. The company announced a response notice on the “Inquiry Letter on Abnormal Stock Trading Fluctuations in Covos Robotics Co., Ltd.” in May 2024. Here is a special reminder.