EZVIZ Network released its third quarterly report, with revenue of 1.38 billion yuan (yoy + 12.7%, qoq + 2.4%) and net profit attributable to the parent of 93.12 million yuan (yoy - 34.9%, qoq - 40.5%). The company's second growth curve in terms of hardware, smart home has gradually grown into the next cash cow business, and actively developed e-commerce and new retail channels to build the brand influence of the company's various core product lines at home and abroad. On October 18, the company announced that the actual controller of the company's wholly-owned subsidiary, Dianke Investment, intends to increase its holdings by 2-400 million yuan within 6 months, demonstrating shareholders' confidence in the company's long-term development. Maintain "Buy" rating.

3Q24 Review: Smart Home Entering Continued to Grow at a Rapid Rate, Gross Sales Margin Decreased YoY The

Company's 3Q24 revenue increased by 12.7% year-on-year, including: 1) Smart home cameras in 1H24 were affected by the decline in revenue from professional customers, with revenue down 4.4% year-on-year, and 3Q24 Purchases from professional customers continued to decrease; 2) Smart home continues to grow at a high rate since 2H23, building a clear second growth curve and gradually becoming the next cash cow business. 3Q24 gross profit margin was 42.0% (-2.3pp year-on-year, -1.9pp month-on-month), and the decline in gross profit margin was mainly due to: 1) product structure adjustment, intelligent service robots are still in the cultivation period, gross profit margin is low, revenue proportion increases, and the clearance and shipment of old versions of cleaning products have a negative impact on gross profit margin; 2) raw material cost increases; 3) competition intensifies. The 3Q24 selling expense ratio was 17.1% (+2.1pp YoY, +2.9pp QoQ), mainly due to the active layout of new products such as household and commercial cleaning robots, and the expansion of e-commerce and new retail channels.

Outlook: Looking forward to the 4Q24 trade-in policy and Double 11 to boost sales in the domestic market, operators' professional channels will shrink, offline channel growth will be under pressure, and the proportion of the company's online channel sales revenue will increase. In recent years, EZVIZ has actively laid out e-commerce channels, precipitated capabilities, and built a short video team internally. In the 2024 Tmall Double 11 Small Household Appliances Preemptive Sweeper Brand Transaction List, EZVIZ ranked seventh.

We look forward to the 4Q24 trade-in policy and the Double 11 shopping festival to boost the sales of the company's smart home and smart cameras. In 3Q24, the company has begun to promote the sales of commercial cleaning robots and generated a small number of orders, and we look forward to using Hikvision's industry channel advantages to become a new growth point for the intelligent service robot business in addition to C-end cleaning robots in the future.

Give a target price of 41.30 yuan and maintain a "buy" rating

Considering that the company's gross profit margin is under pressure due to the impact of product structure, and the expansion of e-commerce and new retail channels has led to a higher than expected sales expense ratio, the net profit attributable to the parent company in 24-26 years has been lowered to 5.6/7.1/880 million yuan (previous value:

　　　 6.3/8.0/1.04 billion yuan). Based on the SOTP valuation, it is estimated that the net profit of 25E smart home hardware will be 340 million yuan, giving 22.0x 25E PE, which is higher than the average of 21.4x of comparable companies, mainly due to the perfect layout and leading market share of smart home hardware and leading intelligent vision technology; It is estimated that the net profit of the 25E cloud platform business will be 370 million yuan, and 67.0x 25E PE will be given, which is a discount to the 108.3x iFLYTEK, the leading domestic AI model. Give the target price of 41.30 yuan (previous value of 36.86 yuan), corresponding to 45.9x 25E PE, and maintain "buy".

Risk warning: new product research and development risks, industry competition intensification risks, information protection and data security risks