Investment events:

Stone Technology released its 2024 three-quarter report. The Q3 Company achieved operating income of 2.59 billion yuan, +11.9% year on year, net profit of 0.35 billion yuan, 43.4% year on year, and net profit of 0.32 billion yuan after deducting net income of 0.32 billion yuan, or -45.3% year on year.

Key points of investment:

Q3 Revenue growth slowed and domestic sales grew rapidly

Q3's revenue was +11.9% year-on-year. We expect the company's export sales growth to slow down and domestic sales to maintain a relatively rapid growth rate. Data from Aowei Cloud Network shows that Q3 Stone Technology sweeper online sales were +42.8% year-on-year. Looking ahead to Q4, domestic sales are being stimulated significantly. JD's self-operated stone sweeper products are out of stock. Aowei Cloud Network data shows that the company's cumulative sales of sweepers were +41% year-on-year in the first two weeks of Double 11. The simultaneous launch of new products overseas welcomed the big promotion in the fourth quarter, and the revenue side is expected to usher in relatively rapid growth.

Short-term pressure on profit margins may be related to changes in product price band layout and channel structure

The company's Q3 gross sales margin was 12.0pct year over year. We expect that the pressure on gross margin is mainly due to the company's extended layout of products in the cost-effective price range, or mainly due to: 1) rate increases due to self-operated channel marketing (+100% sales volume in Germany and Asia during Prime Day); 2) more active marketing in order to cope with market competition; 3) new channels such as offline sales in North America and Europe are still in development, and the scale effect needs to be improved. Management Expense Rate/R&D Expense Rate/Financial Expense Ratio were +1.2pct/+1.9pct/+0.6pct, respectively. The net profit margin for Q3 was 13.3pct year-on-year to 13.6%.

Profit forecasting and valuation

The company's product strength is outstanding, and domestic sales are expected to benefit from national subsidies, and continued offline strength in Europe, Asia and North America. We expect the company's net profit to be 2.17/2.42/2.67 billion yuan in 2024/2025/2026, respectively, +5.6%/+10.6% year-on-year, respectively. The corresponding PE is 19X/17X/15X, respectively, maintaining a “gain” rating.

Risk warning: Increased market competition; risk of changes in international trade policies.