The company announced that its revenue in 2024 was +38% year-on-year, and the net profit attributable to the parent company was -3.4% year-on-year The

company announced that its 2024 performance express: revenue was 11.93 billion yuan, +37.8% year-on-year; The net profit attributable to the parent company was 1.98 billion yuan, a year-on-year increase of -3.4%. Corresponding to 4Q24, the company's revenue was 4.92 billion yuan, a year-on-year increase of +65.9%; The net profit attributable to the parent company was 510 million yuan, a year-on-year increase of -26.3%. The company's 4Q24 revenue exceeded our expectations, and the profit was slightly lower than our expectations, mainly due to the initial results of the company's strategic change, but the short-term investment in expenses was excessive.

Key points of concern

4Q24 revenue exceeded expectations under saturated investment. Since 3Q24, the company's strategy has changed, sacrificing part of excess profits to seek scale growth. 4Q24 by market: 1) Domestic sales: national subsidies drive industry flexibility.

4Q24 beneficiary country supplemental stimulus, stone online sales: 2024 full year sweeper/floor scrubber +52%/+51% year-on-year, 4Q24 sweeper/floor scrubber +99%/+244% year-on-year (AVC). However, the second half of the sweeper was out of stock. 2) Europe: The company increased overseas marketing investment and decentralized product price band, while the proportion of online direct sales increased. We estimate that the company's offline revenue growth in Europe in 4Q24 has turned significantly positive, and online self-operation has increased year-on-year. 3) United States: The company actively expands offline channels, broadens the price band online, and further seizes market share, and we estimate that the company's revenue in the United States in 4Q24 will still achieve rapid growth. 4) Asia-Pacific: The company maintains a competitive advantage in South Korea, Turkey, Singapore and other markets.

Asking for income from profits, profit margins are close to the bottom. In 2024, the net profit margin attributable to the parent company of Stone will be 16.6% (-7.1ppt year-on-year), and the net profit margin attributable to the parent company in 4Q24 will be 10.3% (-13.0ppt year-on-year, -3.2ppt month-on-month). We estimate the factors influencing profit margins: 1) increasing expenses under saturated marketing on a global scale; 2) The price reduction of old sweepers and the increase in the proportion of floor scrubbers/washing machines with low gross profit margins affect gross profit margins; 3) The increase in the investment of new channels such as Douyin in China, the impact of US tariffs, and the increase in the proportion of low-margin channels in Europe.

Take a dialectical look at the dynamic relationship between revenue, profit targets and expense delivery. Short-term overinvestment and significant overshoot of profit margins. We believe that in the future: 1) the company will launch new products in the low-price segment, rather than reducing the price of old products, and the gross profit margin is expected to gradually stabilize; 2) From saturation marketing to moderate grasp of the rhythm, marketing investment is expected to slow down. We believe that in the future, supported by rapid revenue growth, the company's strategy is expected to shift to dynamic adjustment to improve investment efficiency, and profit margins are expected to bottom out. In addition, we believe that Stone's aggressive market strategy will also bring about the clearing of the entire industry, and the company's exploration of the price band is actually to seize the share of small brands and accelerate market consolidation.

Earnings Forecast & Valuation

We lowered our 2024 net profit by 8% to RMB1.98 billion due to the company's higher-than-expected expense saturation, but considering the company's more successful strategic shift, we believe that we are more optimistic about future revenue, and raised our 2025 net profit by 3% to RMB2.31 billion, keeping our 2026 earnings forecast unchanged. The current share price corresponds to 19.1x/16.2x 2025/2026 P/E. Maintain the Outperform rating and $300 target price, corresponding to 24.0x/20.3x 2025/2026 P/E, which is 25.5% upside from the current share price.

Risk

: The risk that the market demand is less than expected; Market competition intensifies the risk.