Incident: Joyang Co., Ltd. announced its 2024 three-quarter report. The company achieved revenue of 6.18 billion yuan in the first three quarters, YoY -8.8%; realized net profit of 0.1 billion yuan, YoY -73.0%.

After conversion, the company achieved revenue of 1.8 billion yuan in a single quarter, YoY -27.1%; realized net profit to mother of -0.08 billion yuan and YoY -166.5%. We believe that domestic demand for small household appliances was low in Q3, and Joyang's business performance in a single quarter was under pressure, and we look forward to subsequent business improvements.

There was a year-on-year decline in Q3 revenue in a single quarter: Looking at the subregions: 1) Domestic consumption of small kitchen appliances was sluggish. We infer that in Q3, Jiuyang's domestic sales revenue declined year-on-year. According to data from Jiuqian, Q3 Joyang Online (Tmall, JD, Douyin) sales YoY -16.6%. 2) Affected by fluctuations in foreign OEM demand, we infer that the company's Q3 export revenue declined year-on-year.

Looking ahead, trade-in policies in various regions will continue to gain strength. Subsidy policies in some provinces and cities have increased the categories of small household appliances such as rice cookers, steaming ovens, and microwave ovens, which is expected to boost the consumption of small household appliances. Joyang continues to expand new products and channels, and the revenue scale is expected to pick up.

Q3 profitability declined year-on-year: Joyang's Q3 net profit margin was -4.3%, -9.0pct year on year. The company's net interest rate turned negative in a single quarter, mainly because: 1) The company increased its investment in marketing promotion and R&D. The cost ratio was +10.7 pct year-on-year during the Q3 period. Among them, the sales expenses ratio, R&D, and management expenses ratio were +8.1 pct, +1.5 pct, and +1.2 pct, respectively. 2) The scale effect weakened due to the decline in revenue scale, and was affected by rising raw material prices and exchange rate fluctuations. The Q3 gross margin was 0.6 pct year over year.

Q3 operating cash flow improved significantly year-on-year: Joyang Q3 net operating cash flow was 0.19 billion yuan, YoY +109.5%. The company's operating cash flow situation improved markedly, mainly due to a decrease in preparation expenses. In Q3, the cash YoY for purchasing goods and receiving labor payments was -19.8%.

At the end of the period, the company's monetary fund balance was 2.58 billion yuan, YoY +38.4%, and cash reserves were quite abundant.

Investment advice: Joyang actively expands product categories, optimizes product structure, and continues to promote direct marketing channel transformation, which is expected to help the company develop with high quality in the long term. As consumption of small household appliances gradually recovers, the company's operations are expected to show greater flexibility. The company's EPS for 2024 to 2026 is expected to be 0.18/0.65/0.79 yuan respectively, maintaining a buy-A investment rating, giving the company a dynamic price-earnings ratio of 20 times in 2025, which is equivalent to a 12-month target price of 12.90 yuan.

Risk warning: Competition in the industry has intensified, raw material prices have risen sharply, and the RMB has appreciated sharply.