Incident: Boss Electric announced its 2024 three-quarter report. In 2024Q3, the company achieved revenue of 7.4 billion yuan, YoY -6.8%, realized net profit attributable to mother 1.2 billion yuan, YoY -12.4%; realized net profit without deduction of 1.07 billion yuan, YoY -16.3%. After conversion, 2024Q3 achieved revenue of 2.67 billion yuan in a single quarter, YoY -11.1%; realized net profit of 0.44 billion yuan, YoY -18.5%; realized net profit without deduction of 0.42 billion yuan, YoY -22.3%. Overall, we believe that although performance is still under pressure, the core channels and main products have improved marginally, driven by the trade-in policy.

Marginal revenue improvement in core categories: According to Aowei Cloud Network statistics, the company's 2024Q3 gas stove/range hood online sales YoY +51.1%/+46.6%. Among them, sales increased markedly in September, with growth rates of +145.4%/+155.9%, respectively. It can be seen from this that the company's core categories showed a marginal improvement trend compared to 2024Q2. At the same time, the company's total revenue declined in 2024Q3, which we think may be due to poor performance in other kitchen appliance categories. Overall, the effects of the trade-in policy are already showing. Demand for core products such as gas stoves and range hoods will continue to be released under preferential incentives, and we expect the company's revenue to rebound from bottom.

Online channels may be stronger: We judge that the company's main sales channel situation in 2024Q3 is as follows: 1) Online channels are favored by the trade-in policy, and the revenue growth rate may be superior to the company as a whole; 2) offline channels mainly enjoy favorable policies through retail channels, while the declining channels do not enjoy policy dividends due to qualifications. Offline channel revenue growth is or at the same level as the company's overall growth rate; 3) According to data from the Bureau of Statistics, the completed area of 2024Q3 housing across the country decreased 29.0% year on year. Affected by the decline in completion, we determined that the year-on-year decline in Boss's Q3 project channel revenue was close to the decline in completed area. We believe that with the continuous release of real estate policies, the real estate market atmosphere is expected to improve, driving a steady recovery in the engineering channels of kitchen appliance companies.

The repair of core channels and product sales led to an increase in gross margin: the company's 2024Q3 gross profit margin was 53.2%, YoY+1.0pct, which is a high level in the past two years. Combined with the above judgment on product and channel sales growth, and considering that the gross margin of retail channels is historically higher than that of engineering channels, we believe that marginal improvements in retail channels and declining sales in engineering channels are the main reasons for the increase in gross margin. Combined with the current pressure on the real estate industry and the ongoing stimulus of trade-in policies, we believe that short-term retail channels will still outperform engineering channels, and gross margins are expected to remain stable, moderate and positive.

Q3 gross sales margin decreased year on year: the difference between gross margin and sales expenses ratio was -1.3 pct year on year, and gross sales margin decreased year on year. We think it is mainly because the kitchen appliance industry was under heavy pressure from early real estate sales and increased market competition. In terms of other expenses, the management/R&D/finance expense ratio YoY is +0.7%/0.1%/-0.3%, and the cost control is good. In the long run, the company is expected to continue to optimize the product structure and improve operational efficiency, and future profitability is expected to improve.

Operating cash flow declined in Q3: The company's net operating cash flow decreased by 0.32 billion yuan year-on-year in 2024Q3. We believe that the company's operating cash flow decreased by 0.27 billion yuan over the same period last year, or due to a slowdown in repayments.

Investment advice: As a high-end kitchen appliance leader, Boss Electric is good at responding to changes in market demand and adjusting its own business strategies such as products and channels in a timely manner. We believe that this excellent ability to manage changes is the foundation for the steady growth of the company's performance. We expect Boss Electric's EPS from 2024 to 2025 to be 1.89/1.93 yuan respectively, maintaining a buy-A investment rating. The target price for 6 months is 28.35 yuan, which corresponds to a 15 times dynamic price-earnings ratio in 2024.

Risk warning: Real estate market fluctuates, raw material prices have risen sharply