By Brian Lantier, CFA

NASDAQ:VIOT

READ THE FULL VIOT RESEARCH REPORT

Viomi Technology Co., Ltd, (NASDAQ:VIOT) operates in China offering water filtration, mineralization systems and related products as of September 2024. The company has undergone a significant transformation in the past few years and we feel that this transformation from a large, multi-line, unprofitable home appliance and connected home device company into a significantly smaller, yet profitable, water solutions company has not been fully understood by investors.

As a result of a substantial drop in demand and revenue in the IoT/connected home business, management completely reassessed the company’s strategy in 2024. As a result of this analysis, the company announced in mid-July its intention to divest its money-losing IoT business to the company’s founder and CEO for RMB 65 million (just over $9 million USD). The divestiture paved the way for the company to focus on its profitable water solutions business.

The ongoing operations of Viomi Technology as of the 8/31/24 divestiture are principally related to the sale of water treatment systems – under-sink filters systems, whole-house filters, water softeners, and replacement filters – that are sold under both the Viomi brand and the Xiaomi brand (1810.HK HKSE). The company’s strong relationship with Xiaomi remains in place subsequent to the divestiture of its IoT business lines and we believe Xiaomi will continue to account for over 50% of sales from continuing operations in 2024 and 2025. Xiaomi also continues to be a significant shareholder in the company holding over 34 million shares or 16.7% of the total outstanding of Viomi.

The company’s growth strategy will be focused on increasing penetration of the domestic Chinese water filtration market with its core water purification systems where we estimate the company has a single-digit market share today, expansion into the US market in 2025 and other developing countries in 2026.

Management has indicated that the continuing operations of the company should have revenues of RMB 1.7 to 1.9 billion ($234 – 261 million) and generate RMB 110 to 130 million ($15 - $18 million) of operating income in 2024.

We estimate that the company’s net cash after the divestiture to be between $80 - $100 million but the actual number may be lower based on investments made in the new production facility.

The initiation report provides an overview of Viomi’s water purification products, the Chinese water filtration market and growth opportunities in the US market.

We include a competitive analysis of the domestic Chinese and US markets and provide further insights into the deep ties between Viomi and Xiaomi. We conclude our report with a valuation discussion which we feel may be conservative if the company can capture a meaningful portion of the US market. We believe that Viomi’s ADSs could be worth $3.75 based on our discounted cash flow analysis, our analysis of other home appliance companies and recent transactions in the market.

Story Continues

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