Incidents:
The company released its 2023 annual report and 2024 quarterly report. In 2023, the company achieved total operating income of 15.5 billion yuan (YoY +1%), net profit attributable to mother/net profit of 6/500 million yuan, -64%/-70%; of these, 23Q4 achieved revenue of 5 billion yuan (YoY -4%), and net profit attributable to mother/net profit of about 0.08/-38 billion yuan, -99%/-107% YoY; 24Q1 achieved revenue of 3.5 billion yuan (YoY +7%), net profit/net profit not deducted to mother. The 2023 profit distribution plan is 3 yuan (tax included) for every 10 shares, with a cash dividend rate of 28%.
Comment:
Export sales continued to grow at a high rate, while domestic sales margins improved. In 2023, the revenue of the Covos/Tianke brand was 7.7/7.3 billion yuan, -1%/+5%, by region: 1) Domestic: The revenue of the Covos/Temco brand was 47/4.2 billion yuan, -12%/-11%. Short-term pressure was mainly due to the lack of product layout for low and medium sweepers and domestic floor washer competition intensifying the average price decline; 2) Overseas: The Covos/Temke brand revenue was 30/3.1 billion yuan, +20%/+41% year over year. The overall growth rate of the two brands was impressive. In terms of shipment volume: 1) The revenue share of Covos all-purpose sweepers increased to 79.9%, +29pct compared to the previous year; 2) The Temecofman series floor scrubbers shipped 3.27,000 units, +25% over the same period last year. 2024Q1 revenue is +7% year over year, export sales are estimated to have maintained a high growth rate, and overall domestic sales have improved month-on-month. According to Aowei Cloud Network, Covos/Tianke's domestic 24Q1 online sales were -2%/+22% (average price -2%/-26%), and offline sales were +26%/+22% (average price +12%/-10%). The T30 series of sweepers made up the 3,000 yuan price band to promote sales growth, and sales of floor scrubbers were growing faster in exchange for volume. Furthermore, the offline channels of the two brands continued to grow rapidly.
Investment in R&D increased, and net interest rates were temporarily under pressure. The gross margin for 2023/24Q1 was 47.5%/47.2% (-4.1/-3.5pct year on year). The decline in gross margin was mainly due to a decline in the average price of floor washer products. The 23-year sales/management/R&D/finance cost rates were 34.2%/3.8%/5.3%/-0.2% (+4.0/-0.5/+0.6pct), and the 24Q1 sales/management/ R&D/finance expenses ratio was 27.7%/3.4%/6.3%/0.5% (-1.6/-1.3/+0.6/-0.5pct), respectively. The improvement in sales cost ratio was clearly due to the strong product strength of the T30 series of sweepers, which led to increased investment efficiency and reduced competition in the floor washer industry. The net profit margin of the 23/24Q1 company was 4.0%/8.6% (-7.1/-1.5pct year on year). Profits improved significantly in 24Q1, and losses in emerging businesses declined sharply (the scale effect of lawnmower robots and Shikwan cooking machines is beginning to show, and the iteration of new commercial cleaning robots is slowing down).
Profit forecast, valuation and rating: Considering that the company's sweepers have filled the 3,000 yuan price band and competition in the floor washer industry is slowing down, the company's net profit to mother for 2024-2025 was raised to 1,43/1.69 billion yuan respectively (up 34%/24% from the previous profit forecast), and the net profit profit forecast for 2026 was added to the 2026 net profit forecast of 1.98 billion yuan. The current stock price corresponds to the PE valuation 20/17/14 times. The company's dual brand leadership position is stable. It maintains a “buy” rating based on long-term optimism about the company's domestic and foreign growth potential and multi-category operating capabilities.
Risk warning: economic recovery falls short of expectations, risk of worsening competition, risk of iteration in emerging categories