The company's revenue performance fell short of expectations. Kaineng Health 2024Q1-3 achieved revenue of 1.254 billion yuan, a year-on-year increase of 1%; realized net profit to mother of 0.084 billion yuan, a year-on-year decrease of 35%; realized net profit without deduction of 0.081 billion yuan, a year-on-year decrease of 18%.

Among them, in the Q3 single quarter, the company achieved revenue of 0.425 billion yuan, a year-on-year decrease of 5%; realized net profit of 0.027 billion yuan, a year-on-year decrease of 64%; and realized net profit without deduction of 0.027 billion yuan, a year-on-year decrease of 44%. Affected by the appreciation of RMB against the US dollar in Q3, the company had certain exchange losses. The company's investment income for the first three quarters was -14.7652 million yuan, down 125.59% from the previous year, mainly due to losses caused by the loss of the participating company Yuaneng Group. Furthermore, increasing the shareholding of Yuaneng Group in the same period last year brought fair value change income of 27.5043 million yuan. There were no similar events in the current period, which affected the year-on-year profit growth rate.

Export sales contribute to the basic revenue base. It is expected that the company will basically continue the trend of the first half of the year overseas in July-August, and the growth rate declined somewhat in September due to freight charges, terminal demand, etc. The penetration rate of water purification series products is high in North America. Strong consumption power+demand for reverse osmosis membrane replacement in North America has driven the company's regional growth rate to a high rate. In terms of tariffs and trade frictions, the company's tariff is expected to be 0-25% for each product. No additional tariffs have been imposed in this round. The North American subsidiary has production capacity and warehouses in the US and Canada, and can directly address the US tariff issue.

The company's products cover 8 categories and 83 series. Brands such as Novo, Hydrotech, and Rainresh owned by Canada's Canature N.A. Inc., all enjoy a good market reputation in the North American water treatment products market.

The domestic water purifier market continues to be sluggish, and efforts are being made to develop a second growth curve for small water. The overall domestic sales market environment is relatively sluggish. The company's domestic sales business is expected to decline to a certain extent. The net capital raised by the company was 0.24 billion yuan by issuing convertible bonds in 2023, and the production capacity of 0.7 million RO membrane reverse osmosis water purifiers will be added after delivery. The additional production capacity is expected to create a second growth curve for the company.

The level of gross profit is stable, and net profit is affected by losses of subsidiaries. In terms of gross margin, the company's gross margin level is relatively stable. Q3 gross margin decreased by 1.1 pcts year on year, mainly affected by raw materials, etc. In terms of net profit, the company's operating net interest rate remained stable, but there were many negative factors. First, the 24Q3 RMB exchange rate appreciated against the US dollar, and the company had certain exchange losses; second, the company held 37% of Yuaneng Group's shares. Due to the slump in industry sentiment and the decline in park leasing during the year, Yuaneng Group's losses increased to a certain extent, which dragged down the company's performance after calculating losses based on shareholding ratio; Third, the company increased Yuaneng Group's fair value revenue of 27.5043 million yuan during the same period last year, which affected the year-on-year profit growth rate.

Profit forecasting and investment ratings. The company's domestic sales market is sluggish. The main revenue from the mature overseas sales system comes from new demand. We lowered our 24-26 profit forecast and expect to achieve net profit of 0.096/0.154/0.187 billion yuan (previous value was 0.159/0.192/0.219 billion yuan), -28%/+61%/21% year over year, corresponding to current price-earnings ratios of 40/25/20 times, respectively. The factors affecting the company's profit in the current period were mostly one-time factors. The clean appliance industry is comparable to companies Covos and Chunguang Technology The 25-year average PE was 26 times, and the company was 24.6 times. Corresponding comparable companies had room of 5% or more, maintaining an investment rating of “increase in wealth”.

Risk warning: raw material price fluctuation risk, exchange rate fluctuation risk.