1H23 result was far more than good, with industry leading sales and net profit growth, plus a declining inventory. And we do think the turnaround is not just here but solid. With such an undemanding valuation of 7x FY23E P/E, backed by a 20% sales CAGR during FY22-25E, we maintain BUY.

1H23 result beat expectations. Vesync's sales grew by 24% YoY to US$ 277mn inline CMBI est. and its net profit surged by 111% YoY to US$ 33mn, beating CMBI est. by 15% and reaching the high-end of its pre-announced profit alert (around 70% to 120%) in 1H23. We believe the speedy sales growth was driven by: 1) strong performance of its new products (e.g. Tower shape and mega sized aur purifier, humidifier, pressure cooker and rice cooker), 2) rapid offline, EU and Japan expansions and 3) resumption of growth from the Etekcity. And the jump in NP margin to ~12%, far better than company's guidance of 10%+ was a mixture of: 1) decent GP margin expansion, thru better transportation, raw material costs, ASP hike and more value engineering, etc., 2) better-than-expected government grants and effective tax rate, but 3) higher-than-expected opex (including A&P expenses and professional fees associated with the products' recall).

The robust FY23E guidance was reiterated but we continue to stay more conservative. Management had maintained its FY23E guidance (20%+ sales growth and 10%+ NP margin) and in fact, they are foreseeing potentially faster growth in 2H23E and even in FY24E, thanks to: 1) prosperous new products pipeline (e.g. new generation air purifier and Air fryer, more smart products, as well as new categories such as the pet care products), 2) more upgrades of its APP and addition of new smart functions, 3) further expansions in other countries in EU and Japan, and 4) more cross selling of products and brands to retailers in the offline channel. Margin wise, we also believe the GP margin and even NP margin can further expand, as: 1) cheaper shipping costs to kick in, 2) CNY depreciation continues, 3) more value engineering are placed to refine the product margins. Since we are more cautious about the potential resumption of import tariffs, we are forecasting a decline in GP margin and just a mild NP margin increase in FY24E (vs FY23E).

Maintain BUY and raise TP to HK$ 6.71 after the significant jump on earnings. We raise our FY23E/ 24E/ 25E net profit forecasts by 43%/ 39%/ 37% to factor in: 1) boost from those successful new products, 2) better- than-expected GP margin, and 3) higher government grants and better tax rate. Considering the robust growth (17% sales and 28% net profit CAGR during FY21-25E), its current valuation of 7x is extremely attractive. Our TP is based on 14x FY23E P/E (unchanged, vs 3 years average of 12x).