Vesync: Overall Gross Sales Indicate Healthy Growth; Shares Remain Undervalued

We keep no-moat Vesync’s 02148 fair value estimate at HKD 6.10 after the release of its overall gross sales data for first-quarter 2023. We think the firm remains undervalued, but the concerns on slowing global economic growth will cap its near-term share price performance. We expect Vesync’s earnings to rebound sharply in 2023, driven by the absence of costs associated with its air fryers product recall that had hurt 2022 earnings. For the first half of 2023, we think earnings growth of around 20% year on year is possible.

In the first quarter, Vesync’s overall gross sales (which don’t represent revenue, as other items such as discounts and allowances are not included) increased by 24.1% year on year. In particular, Amazon channels saw 16.4% growth while the non-Amazon channels experienced 79.7% growth (likely due to a lower base). The healthy growth was largely underpinned by higher sales volume of air purifiers, air fryers and toaster ovens in the United States and European markets. We think this is positive for Vesync, as it reaffirms management’s expectation that the recent product recall should have limited impact on the company’s reputation and future sales.

Meanwhile, Bed Bath & Beyond, a customer of Vesync, officially filed for Chapter 11 bankruptcy on April 23. However, we understand that the exposure to Bed Bath & Beyond is small and hence, we expect limited impact on Vesync’s earnings. We believe Vesync will continue to grow its offline channels with other reputable customers such as Walmart, Target and Costco.