On October 25, 2024, the company released its three-quarter report. The first three quarters achieved revenue of 3.963 billion yuan, a year-on-year increase of 12.93%; net profit to mother was 0.375 billion yuan, a year-on-year decrease of 6.69%. Q3 achieved revenue of 1.379 billion yuan, a year-on-year increase of 12.70%; net profit to mother was 0.093 billion yuan, a year-on-year decrease of 34.87%.

The revenue side maintained steady growth, with gross margin falling year on year. The gross profit margin for the first three quarters was 42.88%, down 0.55pct year on year, and the gross profit margin for Q3 was 42.01%, down 2.29pct year on year. We believe it is mainly affected by factors such as product restructuring (such as an increase in the share of cleaning robots in the incubation of new business categories), rising raw material costs, competition, and exchange rate fluctuations in export business.

Increased investment costs increased, affecting profit performance. The R&D, sales, management, and finance expense ratios for the first three quarters were 15.61%, 15.46%, 3.56%, and -1.68%, respectively, up 0.06pct, 1.17pct, 0.15pct, and decreased 0.48pct year-on-year. We believe that profit performance is mainly affected by the company's increased investment in new product launches, channel development, etc., and the entry of independent office buildings into a certain amount of expenses.

Facing various external business challenges, the company maintains reasonable investment to provide impetus for medium- to long-term growth and development, consolidates technology research and development, actively lays out new product markets such as smart locks, household and commercial cleaning robots, and actively develops e-commerce and new retail channels, and continuously builds the brand influence of the company's various core product lines at home and abroad.

It is expected that the company's upgraded “2+5+N” ecosystem will improve the ability to build ecological solutions for smart living throughout the house.

Profit Forecasts, Valuations, and Ratings

Based on the company's three-quarter report, short-term investment and expectations for future demand recovery, we adjusted the company's 2024-2026 revenue forecast to 54.8/65.17.78 billion yuan, up 13.3% 118.6% 119.7% year on year; forecast net profit to mother was 5.7116.731.883 billion yuan, up 1.4% 117.9% 131.2% year on year, corresponding to 45X38X29X PE, maintaining a “buy” rating.

Risk warning

The risk that domestic growth of SHC will slow down the revenue growth of cloud platforms; the risk that sales progress of cleaning robots will fall short of expectations; the risk that the commercial transformation of C-side cloud services on IoT cloud platforms falls short of expectations.