By Brian Lantier, CFA
READ THE FULL VIOT RESEARCH REPORT
On Tuesday, March 25th, Viomi Technology (NASDAQ:VIOT) released its second half and full year for 2024. As a result of the company’s divestiture of its IoT business in August 2024, the company is a pure-play home water systems and home appliance company. Importantly, the company presented its financial results to show how the continuing operations performed for the first time (the disposed IoT business was reclassified as discontinued operations). Highlights from the company’s earnings release include:
• A 43% jump in total revenue home water systems revenue to nearly $176 million in the second half of 2024. Total revenue exceeded our aggressive forecast by 16% or just over $24 million. The company’s primary revenue category – Home Water Systems – saw sales jump more than 58% from the previous year to $126.8 million largely due to demand for its water purification systems. We believe that the company saw stronger than anticipated demand for its Kunlun mineralization system.
• As a result of cost control efforts, the company was able to record a net income from continuing operations of $9.8 million which nearly matched results for the first half of 2024. For the full year of 2024 the company recorded $19.8 million of net income from continuing operations with a 6.8% net margin.
• While the company reported a combined earnings per ADS of $0.11 for the second half of 2024, more than double our forecast of $0.05/ADS, it is important to note that excluding discontinued operations, the company would have reported earnings per ADS of $0.14 in the second half and $0.29 for the full year of 2024.
• While Viomi has established its continuing operations as a profitable home water system provider and home appliance company that represents a significant value for investors at the current ADS price, we believe the company’s strong balance will give the company flexibility to pursue acquisitions and enter new markets that could enable it to deliver growth rates well above our current conservative estimates. We are increasing our 2025 earnings per ADS to $0.32/ADS (up from $0.12/ADS) and introducing a 2026 estimate of $0.40/ADS.
• Now that we have a clear vision of the company’s path forward independent of the discontinued operations, we believe the company can begin to close the valuation gap between itself and the larger profitable water systems companies that trade at more than two to three times the earnings multiple that Viomi trades at today. We are boosting our valuation target to $4.50/ADS which still represents more than 100% upside to the current price and yet would still give the company one of the lowest valuations in the sector at 11x earnings.
We have noted increased volatility in the company’s shares as trading volumes have increased in recent days and the company was frequently mentioned in a variety of day-trading forums. The stock traded up 25% on the day prior to earnings only to drop 20% on the day after earnings. As with many small-cap stocks, the day-to-day fluctuations in price do not reflect real changes in the fundamentals of the company.
SUBSCRIBE TO ZACKS SMALL CAP RESEARCH to receive our articles and reports emailed directly to you each morning. Please visit our website for additional information on Zacks SCR.
DISCLOSURE: Zacks SCR has received compensation from the issuer directly, from an investment manager, or from an investor relations consulting firm, engaged by the issuer, for providing research coverage for a period of no less than one year. Research articles, as seen here, are part of the service Zacks SCR provides and Zacks SCR receives quarterly payments totaling a maximum fee of up to $40,000 annually for these services provided to or regarding the issuer. Full Disclaimer HERE.
