Vesync Earnings: Strong Recovery Underpinned by Lower Freight Rate and Cost-Cutting Measures

Vesync’s 02148 first-half 2023 net profit of USD 32.6 million more than doubled year on year and is in line with the profit alert issued in late July 2023. This is largely due to stronger sales, lower international freight rates, cost savings initiatives, and enhanced operational efficiency. After incorporating the latest results into our model, we increase our 2023-25 earnings forecasts by 42%-58% and raise our fair value estimate to HKD 7.40 from HKD 6.10. We believe Vesync is significantly undervalued currently, but concerns about slowing global economic growth and Vesync’s short track record may weigh on investor confidence.

We think the key positives are management’s expectation for sales momentum to continue in second-half 2023 and 2024, while gross margin is expected to remain stable. We expect Vesync’s five-year revenue CAGR of 18.2% to be underpinned by geographical expansion, offline channel penetration, and product launches. In addition, we expect Vesync’s average gross margin during 2023-27 to be 43.2%, supported by normalized freight rates and a better product mix. While there is a potential risk that the expiry of current tariff exemptions for its key products in the U.S. during second-half 2023 may pressure margins, management thinks the tariff exemptions will likely be extended. In addition, the firm believes measures such as price hikes, improving cost efficiency, and sourcing outside of China can help to mitigate the impact if the tariff exemptions expire.

In our view, Vesync’s brand strength is evidenced in its market share improvement. According to NPD Group, in the first half of 2023, Vesync’s Levoit air purifiers ranked number one in the U.S. in terms of sales volume and sales value market share, which increased by 7 percentage points and 5 percentage points year on year to 39% and 27%, respectively.