Key points of investment:

The company released its 2024 semi-annual report:

According to the company's announcement, in the first half of 2024, the company achieved revenue of 6.98 billion yuan, -2.4% year on year; realized net profit of 0.61 billion yuan, +4.3% year over year; realized net profit of 0.56 billion yuan after deduction, +10.2% year on year. Among them, in the Q2 single quarter, the company achieved revenue of 3.5 billion yuan, -10.4% year on year; realized net profit of 0.31 billion yuan, +20.7% year over year; realized net profit of 0.27 billion yuan after deduction, or +23.1% year over year.

2024H1's overall revenue remained steady, and profitability gradually rebounded by business. Looking at the business segment, Covos brand service robots achieved revenue of 3.397 billion yuan, or -3.07% year-on-year; Tianko brand smart household appliances achieved revenue of 3.359 billion yuan, +2.42% over the same period last year.

In terms of sweeping robots, the company promoted the overall gross margin level of the Covos brand with the more competitive cost structure of all-round products. As the 2024Q2 share of new product sales increased, the gross margin of the Covos brand increased 5.3 pcts over the same period last year. In terms of cost ratio, 24Q2 company's sales/management/R&D cost rates were 30.8%/4.0%/6.4%, respectively, compared with -3.7/+0.8/+1.2pcts, respectively. While taking into account investment in R&D and innovation, the cost ratio was reduced during the period. Thanks to these strong measures, the company's Q2 net profit margin was 8.9%, +2.3 pcts year over year and +0.3 pcts month over month.

Overseas market growth performance was impressive, actively deploying domestic and offline channels 2024H1 Covos brand revenue +42% year over year; Window Treasure's overseas revenue was +273.2% year over year; overseas revenue and sales volume of lawn mowers were +185.9% and +252.1%, respectively; overall, the overseas business revenue of the Covos brand was +11.3% year over year. On the side of Incor, 24H1's overseas revenue was +31.7% YoY, of which European revenue was +66.1% YoY. In the domestic market, the company is actively promoting offline channel construction. The two major brands have set up nearly 7,000 sales outlets across the country, and 24H1 Covos and Tianke's offline revenue accounts for 33.5% and 26.0% of their respective domestic revenue.

Launch a new equity incentive plan to improve internal governance

The company launched the 2024 Stock Options and Restricted Stock Incentive Plan (draft). It is intended to grant 25.0029 million shares to incentive recipients, accounting for 4.39% of the company's share capital, and the total incentive target is 1,033 people. The performance assessment target at the company level is: based on 2023 revenue, the 2024-2027 growth rate is not less than 2%/5%/8%/10%, respectively. The company also launched the 2024 Employee Stock Ownership Plan (draft), with no more than 11 participants. The company-level performance assessment goals are:

Based on 2023 revenue, the trigger value for the 2024-2027 revenue growth rate is not less than 2%/5%/8%/10%, and the target value is not less than 4%/7% 10%/12%. By introducing a new equity incentive plan, we bind core backbone, further optimize internal governance, and increase employee motivation.

Profit forecasting and investment advice

We expect the company's 2024-2026 net profit to be 1.384/1.607/1.773 billion yuan (previous value 1.384/1.687/1.981 billion yuan), +126%/16%/10%, respectively. We use a comparable company valuation method. The 24-25 average valuation of comparable companies is 18.9/14.3x, and the company's PE valuation is 16.5/14.2x, respectively. Considering that the company is actively expanding overseas markets and offline channels and launching cost-effective products, it maintains a “buy” rating.

Risk warning

Industry demand fell short of expectations, the competitive landscape deteriorated, parts prices rose sharply, etc.