SN Asia Pacific's revenue performance was positive. Short-term gross margin fluctuations and cost investment increased. On August 29, the company disclosed its 2024 mid-term report. The company achieved total revenue of about 0.743 billion US dollars, YOY +29.5%, and net profit from continuing operations was about 0.0296 billion US dollars, YOY -35.9%.

The company's domestic sales business is relatively stable. Overseas business is driven by overseas revenue growth from Sharkninja Asia Pacific and related parties, but the overall gross margin structure is under pressure, expenses are high, and profit fluctuations are high. We temporarily maintain the 24-26 net profit forecast of 0.068/0.084/0.099 billion US dollars. As of August 29, 2024, Wind Comparable's consistent PE forecast for 2024 is 11 times. We gave the company a PE valuation of 11 times in 24 years, maintaining a target price of HK$1.66. Maintain “buy-in.”

SharkNinja has strong performance in Asia Pacific, and future growth can be expected

The SharkNinja Asia Pacific (SN Asia Pacific for short) business unit (mainly including Japan, Australia and New Zealand, with products mainly cleaning appliances and kitchen appliances) 1H24 achieved sales revenue of 0.123 billion US dollars to third party customers, +153%. Among them, the main driving force came from the increase in market share in the Australian and New Zealand markets and the successful entry of South Korea and other places through distributors. SN Asia Pacific has an advantageous brand, and the company relies on the Chinese industrial chain to build high-quality products. We are optimistic that it will continue to be the main focus of the company's overseas growth hands. Joyang Division 1H24 achieved sales revenue of 0.487 billion US dollars to third party customers, which was basically the same as the previous year (+3.3% in RMB terms). The performance of the Joyang brand was not easy in a weak market. At the same time, 1H24 achieved sales of 0.132 billion yuan for related parties as a whole, +289% over the same period last year.

Changes in the revenue structure have affected the overall level of gross margin

The gross margin of SharkNinja's Asia Pacific business of 1H24 was 47.3%, +2.6pct year over year, mainly affected by the increase in the share of high-margin products. Joyang's 1H24 gross margin was 32.1%, the same as the previous year, mainly due to the increase in the share of direct sales channels to offset the impact of the unfavorable product mix. The gross sales margin of 1H24's related parties was 23.5%, and the increase in proportion lowered the overall gross margin level.

The cost rate was affected by SN Asia Pacific's increased investment and equity compensation, and the 1H24 sales and distribution expenses rate increased significantly +1.1 pct year over year. Mainly due to SN Asia Pacific's increased marketing efforts, channel marketing expenses increased significantly. However, the scale and cost ratio of 1H24 administrative expenses increased significantly due to the increase in equity compensation and the increase in personnel and expenses of SN Asia Pacific (+4.6pct compared to the previous year).

Overseas promotion is expected to accelerate, and I am optimistic about the progress of the Asia-Pacific market

The overseas small kitchen appliance market has been repaired, and the company will build a home appliance technology innovation center in Hong Kong in 2023 to efficiently promote the company's localized R&D and implementation of smart home appliances exported by the company, and increase SN Asia Pacific's marketing expenses and personnel support at the strategic level, which may continue to increase SN's market share growth and market development in Asia Pacific.

Risk warning: increased competition; rising raw material prices; fluctuating overseas demand.