Vesync Earnings: Top-Line Weakness Offset by Margin Uptick Amid Cost Savings; Shares Undervalued

No-moat Vesync reported mixed results for the first half of 2024, as revenue missed our expectation but operating profit beat, given cost efficiency improvement. The 7% year-on-year top-line growth for the first half lagged the 19% that we had modeled for 2024, as soft demand for kitchen appliances clouded sales increase of home environment products. While Vesync’s Amazon channel saw a 3% sales decline year on year, non-Amazon channels posted an encouraging 47% growth, reflecting an initial success in diversification. More positively, operating margin increased to 17.1% in the first half compared with 9.4% a year ago, thanks to optimized unit and marketing costs. As such, we lower our 2024 top-line forecast by 9% but raise our operating margin assumption by 150 basis points to 15.5%, leading to minimal change in operating profit. We also maintain our long-run assumptions and HKD 6.80 per share fair value estimate for Vesync, and view its shares as underpriced despite the recent rally.