Key points of investment:

The company's revenue performance fell short of expectations. In 2024Q1-3, Joyang Co., Ltd. achieved operating income of 6.182 billion yuan, a year-on-year decrease of 9%; realized net profit of 0.098 billion yuan, a year-on-year decrease of 73%; realized net profit without deduction of 0.13 billion yuan, a year-on-year decrease of 62%. Among them, in the Q3 single quarter, the company achieved operating income of 1.795 billion yuan, a year-on-year decrease of 27%; realized net profit to mother -0.077 billion yuan, a year-on-year decrease of 166%; and realized net profit deducted from non-mother -0.081 billion yuan, a year-on-year decrease of 172%.

The downturn in the domestic sales industry dragged down, and export sales once again raised the amount of related transactions. According to data from Aowei Cloud Network, the sales trend of 24Q1-3 kitchen appliances is still sluggish. Most categories show a downward trend. The omni-channel retail sales of small kitchen appliances were 37.1 billion yuan, down 4.6% year on year, and sales volume was 0.189 billion units, up 0.2% year on year. Competition was also fierce in terms of price. The average price was 196 yuan, down 4.8% year on year.

The company was dragged down by sluggish overall industry sales, but 24Q4 is expected to usher in restorative growth, driven by trade-in subsidies, etc.

Looking at each channel, the company has deepened channel reform, traditional sales channels have continued to grow, and the proportion of direct sales channels has continued to increase. In terms of export sales, the company's export sales grew rapidly in 2023, and the synergy with Shark increased, so 24Q1-3 was affected by a certain base. Looking at the full year, with reference to the company's “Notice on Adjusting the 2024 Daily Related Transactions Forecast”, the company plans to increase the 24-year daily related transaction amount with the affiliate JS Global Life and its subsidiaries/grandchildren from 9.5 million US dollars (estimated 0.067 billion yuan in RMB converted to the spot exchange rate at the time the transaction occurred) Million US dollars (estimated to be 0.08 billion yuan in RMB based on the spot exchange rate at the time the transaction occurred). The increase in the value of the company's products, the cost advantage in the supply chain, and the growth of related companies themselves in overseas markets increased the amount of related transactions twice during the year, and it is expected that there will be more business expansion in the future. Furthermore, the company transferred 68% of Beetle's shares. After the transaction was completed, the company no longer held shares in the target company and was no longer consolidated.

The increase in the fee rate affects the net interest rate. The company's 24Q3 gross margin decreased slightly by 0.58 pcts to 21.85% year on year, and remained stable overall. In terms of cost ratio, in an environment where domestic sales competition was fierce, the 24Q3 sales expense ratio increased 8.07pcts to 19.12% year over year, and R&D expenses increased 1.22 pcts to 4.48% year over year, mainly affected by the decline in scale effects and centralized cost investment in the third quarter due to major warm-up promotions.

Profit forecasting and ratings. The company was dragged down by sluggish domestic sales and increased cost investment during the year. We lowered our 24-26 profit forecast to 0.15/0.37/0.44 billion yuan (the previous value was 0.41/0.49/0.54 billion yuan), respectively, -61.7%/+145.6%/+18.8% year-on-year, corresponding to current PE of 52/21/18 times, respectively. The small kitchen sales base was low during the year, and the Q4 national supplement is expected to return to positive growth. The company's domestic sales share increase and channel reform are expected to contribute to year-round growth. In the long run, the company's new categories, such as clean appliances, have strong growth potential, and supply chain costs and R&D advantages are expected to be further collaborated with the export OEM. The small household appliance industry is 21.9 times the average PE of companies Supor, Fujia shares, and Kaineng Health for 25 years. The company is 20.8 times, with room of more than 5%, maintaining a “gain” investment rating.

Risk warning: raw material price fluctuation risk; exchange rate fluctuation risk