Vesync: Transferring Coverage with No-Moat Rating Retained; Valuation Lowered

We transfer coverage of Vesync, a Chinese home appliance seller focusing on overseas markets. We maintain its no-moat rating, Very High Morningstar Uncertainty Rating and Standard Capital Allocation Rating. However, we cut our fair value estimate to HKD 6.80 per share from HKD 8.10 after raising the weighted average cost of capital, or WACC, to 11.5% from 9.5%. We think this better reflects Vesyncs elevated business risk, as entry barriers for small home appliances remain low and peers are entering the saturating developed countries markets. As the company ramps up its presence in non-Amazon sales channels, we also raise our marketing expense assumptions through 2033. Hence, our midcycle operating margin forecast is cut to 6.5% from 7.1%.