According to a research report released by Open Source Securities, maintaining the “buy” rating of Quanfeng Holdings (02285), considering that 2023 revenue was lower than previous forecasts and investment in R&D and sales expenses, the 2024-2025 revenue forecast was lowered to US$1,44/1.66 billion (previous value: US$19.5/2.27 billion), and an additional 2026 forecast of US$1.95 billion was added. The bottom position of the company's fundamentals confirms that with demand from core channel providers to replenish stocks and a substantial recovery in US real estate, the revenue side is expected to return to a double-digit growth trajectory in 2025-2026, thereby driving a significant release of profits and thus a rise in valuation.

The main views of Open Source Securities are as follows:

2023 revenue and profit are in line with Profit Alert guidelines, mainly affected by changes in core channel Lowe's inventory policy

The company's revenue in 2023 was US$1,375 million (yoy -30.9%), of which 2023H2 revenue was US$636 million (yoy -35.6%). The sharp decline in revenue was mainly due to changes in the inventory policy of the company's core customer Lowe's. The company's revenue from Lowe's fell by more than 50%, causing the share of revenue from Lowe's to 34.5% from 49.8% in 2022, while revenue from customers other than Lowe's declined by about 10%.

The company tracked end-user POS sales and found positive growth in the face of adversity in terminal OBM brand sales in 2023. The company's net loss in 2023 was US$337.2 million (yoy -127%), mainly due to factors such as declining revenue, lithium battery inventory deduction and impairment provisions at the end of the year, and sales expenses being affected by the expansion of dealer channels. The company's gross margin in 2023 was 28.14% (vs. 30.36% in 2022), and the gross margin was 31.4% after deducting the impact of depreciation provisions for lithium batteries.

The company guides revenue and profit recovery in 2024. Channel vendor inventory replenishment and US real estate recovery are expected to drive growth

The company's revenue and profit are expected to double recover in 2024, mainly due to (1) the core customer Lowe's inventory removal trend and the company achieved a year-on-year correction in sell-in in March 2024; (2) the company achieved positive growth in terminal POS sales in 2023 and there is a recent acceleration trend; (3) lithium battery products still have great potential. The signs of a steady recovery in US real estate are gradually becoming clear. Fannie Mae recently predicted that the sales volume of new and additional homes in the US will increase by 3.3%/9.8% in 2024/2025. As channel providers adjust inventory policies and begin a substantial recovery in US real estate, the company's revenue is expected to rise steadily in 2024 and double-digit growth in 2025-2026.

Risk warning: The company's new product development fell short of expectations; the US economic recession exceeded expectations; channel inventory exceeded expectations.