After the joy of the third quarter report, Chervon (02285) seems to finally show signs of &#34;picking up&#34;: the stock has experienced two consecutive rises (16th-17th), with a cumulative increase of nearly 20% during trading hours, almost recovering from the previous days' decline. However, the company's upward trend did not maintain a strong momentum. As of the close on the 17th, Chervon closed at HKD 21.3, down 0.47%, with a turnover of HKD 41.237 million. The shift from rise to fall indicates that investors do not have full confidence in its development.
According to the Securities Times APP, at the end of December 2021, Chervon successfully listed on the Hong Kong Stock Exchange. Due to the bottleneck in performance growth in 2022 and 2023, the company's stock price has been more than halved from the issue price of HKD 43 over the past two years. Compared with the historical high of HKD 69.6, the stock price is close to being &#34;halved at the knee&#34;.
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Performance under high growth with a low base is still not as good as 2022
It is reported that Chervon is a supplier of power tools and outdoor power equipment (OPE), focusing on innovation in lithium battery system technology. Established for over 30 years, the company has evolved from early ODM business to self-built and acquired 5 major proprietary brands, covering consumer-grade, industrial/professional-grade power tools, as well as high-end and mass-market OPE products, gradually maturing its product matrix. Currently, its proprietary brands EGO, FLEX, SKIL, Devon, and Xtron are well established, while the company also provides ODM services for leading companies such as Bosch.
Looking at the performance in recent years, Chervon's operating conditions can be described as &#34;declining all the way to losses&#34;.
From 2021 to 2023, the company achieved revenues of RMB 1.758 billion, RMB 1.989 billion, and RMB 1.375 billion respectively, with year-on-year growth of approximately 46%, 13%, and -31% respectively; achieving net profits attributable to shareholders of RMB 145 million, RMB 139 million, and -37 million respectively, with year-on-year growth of approximately 226%, 4%, and -127% respectively.
With a low base in 2023, the company is expected to achieve a net profit of approximately USD 100 million in the first three quarters of 2024, a significant increase of 300% year-on-year. However, compared to 2022, the company's performance is still slightly inferior.
Looking at the mid-term financial report, Chervon's revenue in the first half of 2022 was RMB 1.002 billion, while in the same period of 2024, it was RMB 0.816 billion, a decrease of 18.6%; the net profit attributable to the parent company in the first half of 2022 was RMB 63 million, which is basically flat compared to RMB 62 million in the same period of 2024.
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In fact, the company's performance in the first three quarters of the year has seen a significant increase, which can be considered quite promising. After all, the interim report has already revealed some aspects.
It is reported that in the interim financial report, the company stated that the expected growth in net profit is mainly driven by the following factors: first, due to strong performance in terminal sales and an increase in customer orders, the company's revenue has increased. This growth is attributed to the company's strong brand appeal, effective promotional activities, and favorable weather, which help stimulate consumer demand at the end and accelerate the channel destocking cycle; second, the company has expanded its production scale and improved production efficiency in a balanced and efficient manner to optimize operating expenses, thereby driving the company's profits in a positive direction.
Of course, from a deeper perspective, the ability of Chervon to turn losses into profits this time may have a certain correlation with the upcoming replenishment cycle in the garden machinery sector.
Affected by global inflation and destocking factors, the OPE industry in 2023, especially the lithium battery OPE sector, has faced pressure on performance for most companies, such as Greebo and Daye Stock, both of which experienced varying degrees of losses in 2023. However, it is important to note that from a long-term perspective, with the recovery of the OPE industry, leading companies represented by Chervon are expected to fully enjoy the industry's development dividends and usher in significant development opportunities.
Tianfeng Securities research report believes that the main customers in the OPE commercial field are landscaping companies, with the lithium battery substitution rate in the North American commercial field in 2023 being less than 5%. The fuel ban issued by California in the United States is expected to further expand the development space for lithium battery OPE. Benefiting from the mature lithium battery industry in China, Chinese brands are expected to achieve overtaking in the curve along with the trend of OPE electrification.
<h2>Even the industry leader has &#34;hidden concerns&#34;</h2>
According to the materials publicly displayed in Chervon's 2023 annual report, the sales volume of the EGO56V battery platform has reached 14 million units, ranking first in the industry market share. The EGO brand has become the number one lithium battery OPE market share in Amazon and the number one lithium battery OPE market share in the United States for hand-held lithium battery OPE. Among the 58 most popular gardening tools of the year, EGO has consistently ranked first in positive reviews 45 times. This means that as an industry leader, Chervon obviously has a certain scale advantage.
Zhixun Finance APP has noticed that in recent years, the market growth rate of the global power tool industry has slowed down. According to a Frost &amp; Sullivan report, by revenue, the global power tool industry's market size increased from $30.9 billion in 2016 to $39.2 billion in 2020, with a compound annual growth rate of 6.1%. It is expected that from 2021 to 2025, the global power tool market size will reach $51.3 billion, with a compound annual growth rate of 5.5%.
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Against the backdrop of the industry's slowing growth rate, the growth prospects of Chervon as a leading player have become its &#34;hidden concerns&#34;
Moreover, from the perspective of competitive landscape, the global electric OPE market has a relatively concentrated competitive landscape, and the level of competition is also significant.
According to Frost &amp; Sullivan data, the top ten participants accounted for approximately 88.4% of the revenue in 2020. Among them, Chuangke Industrial (20.4%) ranked first in market share, followed by Chervon Holdings with a market share of 11.4%. Other domestic participants include Greebo, Daye Shares, Juxing Technology, and Baoshide, while major foreign companies include Chuangke Industrial, Toro, Husqvarna, and Stanley Black &amp; Decker. Daye Shares mainly produces fuel-powered lawnmowers, while Greebo specializes in new energy landscaping equipment.
However, Chervon Holdings is also actively expanding its product offerings to drive growth. In 2023, the company will continue to expand its OPE and power tool product ecosystem based on the battery platform. On one hand, the company is expanding the EGO brand with high-pressure washers, wet/dry vacuums, and mini bicycles to enhance user stickiness to the EGO 56V battery platform. On the other hand, the company has introduced over 40 new products and expanded the application range of the 24V platform under FLEX. Currently, analysts believe that the company's destocking cycle is ending, which is expected to boost profitability.
Huaxi Securities forecasts the company's operating income for 2024-2026 to be $1.68 billion, $2.02 billion, and $2.36 billion respectively (with values for 2024-2026 being $1.68 billion, $2.03 billion, and $2.36 billion), with net profit attributable to the parent company at $134 million, $170 million, and $204 million respectively (with values for 2024-2026 being $110 million, $142 million, and $182 million), corresponding to EPS of $0.26, $0.33, and $0.40 respectively (with values for 2024-2026 being $0.22, $0.28, and $0.36).
In conclusion, Chervon Holdings, which has experienced a double blow to profitability and valuation, seems to still be struggling to see the &#34;dawn&#34;. At the current stage, considering that the recovery of the power tool market still needs time to be verified, it is still too early to assert that Chervon Holdings has reached a turning point in performance. However, as a leading company in the industry, once the industry inflection point arrives, Chervon Holdings still possesses strong rebound capabilities

02285

CHERVON achieved a net profit of approximately 100 million yuan in the first three quarters of 2023, a year-on-year increase of 300%. Despite a nearly 20% increase in stock price after the third quarter earnings report, the closing price on the 17th was HKD 21.3, down 0.47%. Since its listing in 2021, the stock price of CHERVON has halved from the IPO price, with performance still lagging behind 2022. CHERVON focuses on electric tools and outdoor power equipment, with significant fluctuations in operating performance in recent years

Net profit tripled in the first three quarters, has the performance turning point of CHERVON arrived?