The company released its 2022 annual report. The annual revenue/net profit attributable to the mother/net profit after deducting non-net profit was -13.5%/-5.5%/-12.7%, and the performance slightly exceeded expectations. Internally, through implementing the full cost reduction process, the company's annual gross margins and net interest rates were +2.5pcts/+0.7pct, respectively, compared to +0.7pct, and profitability improved. Externally, the company actively deployed the “hardware+software+course content+professional fitness coach” fitness platform on the product side. The marketing side grasped exposure opportunities for major events such as the 2023 Asian Games, while signing contracts with famous athletes to expand brand influence. Through active participation in civil-military integration projects, the company's military and police department system project reserves increased by more than 35% year-on-year. At the same time, combined with college interest rate discount policies to create a campus benchmark project, it is expected to actively seize the 2023 recovery opportunities and maintain the “increase in holdings” rating.

Revenue: Achieved revenue of 1.35 billion yuan/ -13.5% for the full year of 2022, and the decline in Q4 narrowed month-on-month. The company announced its 2022 annual report, achieving annual revenue of 1.35 billion yuan, -13.5% year on year. Among them, Q4's quarterly revenue was 422 million yuan/ -10.7%. The decline was narrower than Q3's 14.2%. Looking at split products, the revenue of indoor fitness equipment/outdoor fitness equipment/display racks reached 82/2.0/30 billion yuan respectively, compared with -15.7%/-16.7%/-1.8%, respectively.

On the one hand, the decline in revenue was due to the epidemic disrupting offline fitness equipment and display stand sales. On the other hand, under the influence of the overseas macro environment, the company's export revenue was -46.7% year-on-year to 114 million yuan.

Profit: Cost reduction throughout the process led to an improvement in profit margins, with net profit of 109 million yuan/-5.5% for the whole year. Throughout 2022, the company clearly proposed the “scientific slimming” strategy and implemented a full-process cost reduction plan. At the same time, under the reduction in raw material prices, the gross margin of the company's indoor/outdoor fitness equipment was +2.6/+2.5pcts year-on-year respectively, driving the company's overall gross margin to increase 1.6 pcts to 29.8% year on year. In terms of expenses, due to the decline in sales scale, the company's overall cost rate increased slightly by 0.9 pct during the period. Under the combined influence of the above factors, the company's annual net profit/net profit after deducting non-net profit was 109/89 million yuan, compared with -5.5%/-12.7%, respectively, and net interest/net interest rate after deducting non-net interest rate reached 8.1%/6.6% respectively, up to +0.7pct/+0.1pct respectively, and profitability increased.

Outlook: Integrate multiple businesses, increase brand exposure, and actively seize recovery opportunities in 2023. On the product side, the company actively lays out the “hardware+software+course content+professional fitness instructor” fitness platform to explore new models of business integration. On the marketing side, on the one hand, the company grasped exposure opportunities for major events. After becoming a supplier for the Beijing Winter Olympics, the company once again successfully won the bid for the Asian Games program, further increasing industry recognition; on the other hand, the company signed nine goalkeeper Pan Xiaoting and bodybuilding and fitness world champion Zheng Shaozhong, which continued to expand its brand influence. Currently, the company is actively participating in civil-military integration projects. The reserves for military and police department system projects have increased by more than 35% over the same period last year. At the same time, combined with interest rate discount policies of colleges and universities to create a benchmark campus project, it is expected that they will actively seize recovery opportunities in 2023.

Risk factors: Macroeconomic pressure; raw material prices have risen sharply; the penetration rate of fitness sports falls short of expectations; industry support has weakened; competition in the fitness equipment industry has intensified.

Profit forecast, valuation and rating: The company's 2022 full-year revenue/net profit attributable to the mother/net profit after deducting non-net profit was -13.5%/-5.5%/-12.7%, and the performance slightly exceeded expectations. Through cost reduction throughout the internal process and external product/marketing efforts, the company is expected to actively seize recovery opportunities in 2023. We raised the company's 2023/24 EPS forecast to 0.33/0.40 yuan (the original forecast was 0.29/0.34 yuan), and increased the 2025 EPS forecast to 0.45 yuan. Referring to the average valuation level of Technogym, a leading overseas fitness equipment company since listing (29xPE, from Bloomberg) and the company's average valuation level since listing (44xPE), and considering the company's industry-leading position as a local home fitness equipment company, we gave the company 30 times PE in 2024, corresponding to a target price of 12 yuan, maintaining the “increase in holdings” rating.