Key points of investment:

Revenue was in line with expectations, and net profit to mother fell short of expectations. Xinbao Co., Ltd. achieved revenue of 12.69 billion yuan in 2024Q1-Q3, an increase of 18% over the previous year; achieved net profit of 0.785 billion yuan, an increase of 7% over the previous year; and realized deducted non-net profit of 0.797 billion yuan, a decrease of 1% year on year. Among them, in the Q3 single quarter, the company achieved revenue of 4.967 billion yuan, a year-on-year increase of 13%; realized net profit to mother of 0.343 billion yuan, an increase of 1% year-on-year; and realized deducted non-net profit of 0.306 billion yuan, a year-on-year decrease of 14%. The company's Q3 net profit maintained a steady growth trend. The main reason was that export revenue continued to grow, and expenses were relatively stable during the period, with a slight increase. The biggest impact was the year-on-year decrease in exchange rate gains and losses.

Overseas growth has continued, and domestic sales of new products have performed brilliantly. From a regional perspective, in terms of export sales, the company's export order growth rate is impressive. The overall growth rate of household appliances is relatively fast. The main reason is that the company is in the channel of category expansion, and orders from major customers have increased. It is expected that the Q4 export order boom will continue to be maintained. In terms of overseas production capacity, the company's Indonesian base has two phases. It is expected that the second plant will release corresponding production capacity within the year, and the two plants will basically be able to handle orders from the US market after delivery. In terms of domestic sales, the overall domestic sales environment for small kitchen appliances is relatively sluggish. According to Aowei Cloud Network data, the 24Q1-3 kitchen appliance industry's omni-channel sales volume was 37.1 billion yuan, down 4.6% year on year. The company's domestic sales were also under some pressure, but it performed well in terms of new products. For example, the coffee machine circuit company maintained a leading position and continued category innovation to contribute to the company's growth. Domestic sales are expected to pick up in the fourth quarter, driven by the trade-in policy.

The gross margin has declined, and the expense ratio has remained stable. The company's gross margin declined to a certain extent, falling 2.2 pcts from 23.1% in 2023Q3 to 20.87%. Overall, raw materials, exchange rates, etc. are in a normal position, or affected by certain product restructuring.

In terms of fee ratios, 24Q3 companies' three major expense ratios remained stable and declined slightly. The main reason for the increase in financial expenses was exchange losses due to the appreciation of the RMB exchange rate against the US dollar in the third quarter of this year.

Profit forecasting and investment ratings. The company's export business improved markedly, domestic sales performance was steady, and categories such as coffee machines developed a second growth curve. We maintain our 24-26 profit forecast and are expected to achieve net profit of 1.068/1.169/1.258 billion yuan, respectively), with year-on-year increases of 9.3%/9.4%/7.6%, respectively, corresponding to the current price-earnings ratio of 11/10/10 times, respectively. As a leading Western-style small household appliance company, the company's profitability is expected to gradually recover and maintain a “buy” investment rating against the backdrop of a significant recovery in export sales and the gradual expansion of new business.

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