20220817-招银国际-VESYNC-02148.HK-Sales_and_cost_pressure_may_persist_in_2H22E_9页_1mb

Vesync (2148 HK) Company Update Summary

Core Content and Key Insights

• Downgrade and Target Price Adjustment: The company has been downgraded to HOLD from a previous rating, with the target price cut to HK$5.27, reflecting a +5.3% upside from the current price of HK$5.01. This adjustment is based on revised expectations for performance and valuation.

• Earnings Miss: Vesync expects a 40%–60% YoY decline in net profit for 1H22E, which is significantly lower than the previously estimated ~50% YoY growth for FY22E. This is attributed to:

  • Surge in freight costs (at least 70% YoY increase)
  • Foreign exchange losses (at least 320% YoY increase)
  • Rising staff costs (at least 70% YoY increase)

• Historical Performance: The FY21 net profit also missed expectations by 30%–40%, indicating a pattern of underperformance.

• Sales and Margin Concerns in 2H22E: Sales growth is expected to be weaker due to:

  • Inflation and geopolitical issues affecting consumer purchasing power in the US and EU
  • Competitive pressures with new entrants like Shark impacting ASP (average selling price)
  • Promotional activity likely to increase due to inventory levels, leading to higher retail discounts and lower gross profit margins

• Cost Pressures: Staff costs are anticipated to rise faster than sales growth, and the company's bargaining power may limit the benefits of any cost reduction in freight or raw materials. FX losses are expected to remain high due to the strength of the US dollar.

• Earnings Revisions: Net profit forecasts for FY22E, FY23E, and FY24E have been cut by 43% / 22% / 22%, respectively, due to:

  • Slower sales growth
  • Lower gross profit margin
  • Higher operating expenses

• Valuation: The company is currently trading at 12x FY23E P/E, which is below the 3-year average of 15x and the industry average of 14x. The target price is based on a 13x FY23E P/E, which is lower than the current valuation.

• Peer Comparison: Vesync's P/E and P/B ratios are lower than the industry average, but its ROE is relatively strong at 14.5% for FY22E. Effective tax rates are also lower than the industry average, indicating potential tax benefits.

• Regional Sales Performance:

  • North America saw 13% growth in 1H22E, down from 18.4% in FY21A
  • Europe had a 30% increase in 1H22E
  • Asia showed 45% growth in FY21A, but 39% in 1H22E

• Segment Performance:

  • Seller Central experienced a -15% sales growth in 1H22E
  • Vendor Central saw 18.3% growth
  • Others (including offline) had 70% growth in 1H22E

• Operating Margins: Operating profit margin is expected to decline in 2H22E, with EBIT margin also showing a decrease. The net profit margin is projected to be 7.3% for 1H22E.

• Financial Highlights:

  • Revenue is projected to grow at a 17.4% CAGR from FY22E to FY24E
  • Gross profit is expected to increase, but net profit is projected to decline
  • Tax is expected to decrease, contributing to higher net profit margins

• Assumptions and Outlook:

  • Sales growth is expected to slow in 2H22E
  • Gross margin is likely to remain stable or slightly improve
  • Operating expenses are expected to increase, especially staff costs
  • FX losses may continue to be a drag on profitability
  • Inventory levels are expected to lead to increased promotional activity

Key Financial Metrics

Summary of Earnings Revisions

Peer Valuation Comparison

Conclusion

Vesync is facing significant sales and cost pressures, particularly in 1H22E, with a 40%–60% YoY net profit decline. The company's budgeting issues and increased costs are expected to continue into 2H22E, with sales growth and profit margins likely to remain weak. The target price has been reduced to HK$5.27, and the company is now trading at 12x FY23E P/E, which is below the 3-year average and industry average. Despite some tax benefits, the overall valuation is considered unattractive, and the peer comparison shows that Vesync is underperforming in terms of P/E and P/B. The financial performance is expected to slow down in 2H22E, with lower sales growth, higher operating expenses, and continued FX losses.