Vesync: Positive Profit Alert Indicates Recovery on Track; Shares Undervalued

Vesync 02148 guided that first-half 2023 earnings would increase by about 70%-120% year on year. The profit guidance is better than we expect, and the firm attributed the strong recovery to increased sales at both Amazon and non-Amazon channels, reduced costs on the back of lower international freight rates and other cost savings initiatives, as well as enhanced operational efficiency. Ahead of the upcoming results release expected by end-August, we maintain our earnings forecasts and keep our fair value estimate of HKD 6.10. While we think the strong guidance reinforces our undervalued call for Vesync, we believe investor confidence may remain hesitant with our view that U.S. GDP growth will slow to around 1% over the next three quarters. We think this may add volatility to the share price.

In the second quarter of 2023, Vesync’s overall gross sales (which exclude discounts and allowances) increased by about 33% year on year. Notably, the Amazon channel saw 21.6% growth while non-Amazon channel growth surged sharply by 129.3%, partly due to a lower base. This was supported by higher sales volume of air purifiers, air fryers, and tower fans in the United States and European markets. We think Vesync is benefiting from the hot summer and haze in the U.S. and Europe, while the product recall on the air fryers has had a limited impact. The hot conditions worsened in July, so we would not be surprised to see continued sales strength in the third quarter.