Viomi Technology Co., Ltd (VIOT) Earnings Call Transcript & Summary

Hello, and welcome to the Deutsche Bank Virtual Investor Conference, dbVIC. This is Zafar Aziz from the Deutsche Bank team. I'm pleased to welcome our next presentation by Viomi Technology from China. Before I introduce our speaker, a few points to note. Please click on the questions box to ask a question. All of today's presentation were recorded and can be accessed by the Deutsche Bank website, adr.db.com. I'm happy now to hand over to Viomi Technology.

Thank you. Thank you for having us. My name is Claire Ji I'm the IR relationship of the company, and hello, everyone. Welcome to Viomi Technologies business update session. Today, we have Mr. Sam Yang with us, and he's from the Head of Capital and Investment Department. And I will first share the recent development as well as updated financials of the company, and Mr. Sam will join us for the Q&A session. Before we continue, let's take a second to check out the safe harbor statement and begin our today's sharing. Yes. As you know, due to the delayed submission of our 2024 annual report, the earnings release for the first half of 2025 will be also postponed and which is scheduled to be on next Monday, which is November 10. And although however, the completion of our strategic reorganization last year, marking a perfect milestone as we sharpen our focus on our core home water solutions businesses. And our strong performance in last year. And the continuing operations achieved net revenue of RMB 2.1 billion and RMB 144 million in net profit. And also, we expect the revenue of the first half of 2025 to exceed RMB 1.4 billion, representing an increase of over 70% year-over-year. The company has now fully entered a new phase of high-quality development characterized with synergistic growth in both scale and profitability. And our strategic focus is to concentrate all resources and efforts on home water solution business, continuously enhancing more intelligent and comprehensive water purification products and guided by global expansion of the direction for sustained innovation, we will provide more diversified product portfolios tailored to living habits across different countries and regions while ensuring steady improvement in operational foundations. We provide revolutionized home water experience with AI-powered home water solutions, including whole home [indiscernible] and installation-free products. And Viomi has dedicated to the water purification industry for over a decade. Since our founding in 2014, when we partnered with Xiaomi to launch the first smart water purifier that redefine the industry. Through our renewed strategic refocus on water purification last year, we have built a solid moat in manufacturing, R&D and innovation in home water business. Today, as we entered our second decade for global water, Viomi is striving to become a provider of smarter and healthier home water solutions for users worldwide. We established 7 leading technology pathways and are continuously enhancing our module functionalities to upgrade our product competitiveness and diversify our product portfolio. And in 2025, we launched a new product series in the Kunlun series, featuring mineral rich and alkaline water by integrating the natural geological process that forms mineral water in nature into our Kunlun filters. We enable consumers to enjoy naturally [ occurring ] mineral water right at home. And we use AI technology to do that. We have proprietary platform to achieve remote real-time monitoring of water quality and usage, provide timely filter replacement reminders and one-click reordering and DIY replacement options. This innovation makes smart water purification products a reliable, hassle-free and affordable essential for daily life. Our global leading integrated water purifier gigafactory is designed to have an annual water purifier production capacity of 5 million units and annual future production capacity of 30 million units with total investment of USD 130 million. And up to date, our investment progress has reached more than 60%. We have built out the omnichannel distribution network to power global market access. In the domestic market, we sell our Viomi branded products through all the major online channels like Jingdong ,Tmall , Pinduoduo and et cetera. We also have national coverage of service centers to guarantee our after-sales services. Our global strategic partners, including Xiaomi, Jingdong and [indiscernible], we work with our dealers nationwide and with our products are sold by the dealers on the Xiaomi offline stores. In 2025, we have made remarkable progress in overseas expansion. In March, we signed a strategic cooperation agreement with [indiscernible], a leading and the largest actually the offline retail company in Malaysia, and our Viomi water purifier will be widely available in their offline stores across nation. And in August, our Volta series ranked sixth on Amazon and the Under-Sink tank water purifier list. And also in September, we bring new products to Amazon, which is the high-end mineral water purifier Master 1. And in October, recently, we unveiled the Compact Countertop Inno series in Malaysia and officially announced the single Shila as our brand ambassador in Malaysia. That was just happened last week. And the global market of the home water purification and is entering a growth -- high-growth era with differential market penetration in major countries and regions. So far, the U.S. market is the largest market with USD 6.7 billion market scale, while the Chinese market has great potential with a comparably low market penetration. And we see growing public concerns about drinking water quality, increasing awareness of health and environmental protection and consumers diversified demand in water, such as better taste, better quality. These are the proven factors for increasing market penetration. And to conclude about sharing, Viomi is focused on the water purification sector, a field where we possess distinct competitive advantages and sustainable market growth. We will continue to strengthen our technological and R&D capacities as well as our production and manufacturing expertise and steadily advancing the global water vision. And actually, today, I will not go into further details in the 2024 financials. And we welcome all of you online to follow our first half year results, which will be released next week. And to conclude with an update on our recent dividends and stock buybacks. In July this year, we declared a special cash dividend with demonstrating our intention to share the opportunity improvements that we achieved during since the restructuring with our shareholders. And in October, we got the approval from the Board for a new repurchase program with a total amount of USD 20 million. And as our Founder and Mr. CEO, Mr. Chen stated, our strategic transformation and initiatives are designed to ensure the company's long-term sustainable growth and to enhance shareholder value. We commit to growing together with our valued shareholders. Thank you all for listening our sharing, and we will have Mr. Sam to join us for the Q&A session now.

Thank you, Claire. Let's start the Q&A.

Okay. Okay. We got our first question. Can you speak to projected growth rate for household water purification solutions?

Yes, In China, let's just talk about for China for the moment now. If we're talking about China, the penetration rate right now is still low. And the industry growth CAGR is talking about 8% every year. And this year for 2025, it's a little bit higher. If this is related to our company, we think that the rate is higher than the industry. But if we talk about the U.S. side, the CAGR is talking about 8% also. So -- but if we talk about the Amazon, it's double digit every year. So we are at the same rate as the industry. So that's the U.S. side. If we talk about the Malaysia, it's a little higher. It's talking about lower double-digit, CAGR every year, and we are at the same rate. And let's talk about the next question.

Okay. And this question is about our products in Malaysia. Are the models sold in new markets like Malaysia Viomi branded or Xiaomi labeled? Also, are you seeing additional use of your app for future replacement orders?

For Malaysia?

Yes, maybe I'll answer this question directly. And the models we sold in Malaysia are Viomi branded products, and we have this series named Kunlun series. It's a very compact design and it's a countertop water purifier. And actually, at this moment, the idea -- I assume you asked about any additional use of the app for the user replacement, especially for the Viomi branded products, we haven't got to that phase yet because we are -- this new generation of water purifier only have like -- the standard has 2 filters and which already has extended lifespan of the filters. And we think this more encourage people to get more involved in the water purifier products, and it helps to grow the penetration of these products. Yes, that's it. And we'll have the other question. What is the competition for your solution and impact of your [indiscernible] AI-driven water solutions?

I think you can just answer this question, Claire.

Yes, this is a new question. Okay. Sure. No problem. And what is about the competition of our solution is the major thing is we have dedicated in this sector for over 10 years. And from the technology point, we have this diversified mineral technology, which is one of a kind in Chinese market. And also, I think our technology, what we brought, especially the Master 1 series we bought in Amazon is so far ahead of the market technology and the average pace. And also for the AI-driven factors, there's a lot of things you can experience when the product has this AI functionality because it can provide you the remote and real-time monitoring of water quality and also intelligently adjust the mineral in the water. So you can see the smart display and the water quality, the filtered water quality on your vessels and on your mobile phones also. So these products, we are ahead of the market average technology pace, and we think that's one major thing. That this product can bring actual convenience to consumers and can promote the penetration both in China and globally.

Yes. There's another question. What were the drivers of the 29% year-over-year growth for the last year? And do you expect this momentum to continue into this year? Yes, it's a good question. Let me just answer it. For last year, actually, what we did is we are more focused on our core business. This is the main reason we get that driver that -- and the second one is about the whole team is more focused on the product innovation so that we can just launch the products in Amazon at the end of the last year. And for this year, we expect it's going to continue, and we will deliver double-digit growth and which is very strong for this year. And the key drivers this year is 3 pillars actually. The first one is about the product innovation. We launched the Inno and we launched the mineral water series, and we have the heating functions, and we have the icing functions. So it's a lot of innovation we launched this year, which has delivered a good result for the first half actually. We had 70% -- over 70% growth. And the second pillar is about the strategic partnership with Xiaomi, and we have more and more products produced actually, we have fulfilled the customer needs. And our relationship with Xiaomi is strengthening that -- which actually we believe we will continue for the coming 2 years. And the third pillar is about the overseas market that -- you can see that we have Amazon last year launched the new products that this year, we have a very good result. It's grown very strong. So -- and we are going to launch our earnings release next Friday, actually, and you can see the format that we can see. And let's go to the next question. What...

Okay. Sam, I read the question and you can answer that. Yes.

Okay.

Sure. What are your priorities and milestones for international expansion over the next 12 months?

For the next year, actually for the national-wide and for the worldwide, let's just talk about the worldwide first. If we talk about the worldwide, what we are focusing is the U.S. market and the Malaysian market. And we are going to launch more and more new products actually in Amazon. And recently, we just launched the M1, which is more like the mineral water, and we are going to launch more to U.S. market. And we are going to establish the offline sales channel in the U.S. So we will have the online and also the offline for the U.S. market. And we will build up our brand awareness in the U.S. market. And for the Malaysia, what we did is we just did a new product actually launched just in the Malaysian market. And also, we have a brand speakers now in Malaysia. And what we are going to do in Malaysia is we are going to find more distributors to sell our product in Malaysia and which is centralized in the -- actually can cover Indonesia and Thailand and also Singapore and for other areas actually. So Malaysia is very important for the company. And if we're talking about China, China is -- what we are going to do is we centralize on the mineral water function and also we provide more and more functions into the products actually. So we will -- we will have a new -- we already have a new brand speakers right now in China. And so that will enhance our brand awareness.

Yes, sure. And the next question is about our Gigafactory. And what operational risk are associated with scaling up manufacturing capacity at the Gigafactory? And how is Viomi managing this risk?

Yes. I think it's very good. Right now, the Gigafactory, what we build up is the world-class level, and we have a very high automation. And it can produce 2 million finished goods a year and 10 billion -- finished a year. So the challenges and risk right now is about -- I think it's more like the challenge. The first one is about the -- how to speed up with the sales. It takes time to get the production ready for the sales that -- which is booming actually it's very quick. And so we need to prepare the material. We need to prepare the labor, and we need to get the machine running without any problem. So that's the planning side. We need to do it well. And the second part is about how to manage the risk of the purchase. Once you have that sales order and you need to produce it at a reasonable cost, so you need to book the material in hand in advance so that you can just get a reasonable price. That's the second challenge. And the third one is about the automation side. You cannot do everything by the automation because once you have the automation, that means you can produce a lot of product. And if the product cannot meet the needs of the customer, that means a waste. So you need to be very national and rational and also you need to be very cautious about the automation. So every investment into the automation, we need to evaluate, and we should keep it at the speed as our sales growth. Thank you.

Sure. And our next question is about the future replacement. Can you share more about the life span and the DIY aspect of wellness future products? How does this impact customers' retention and recurring revenues?

For the DIY side, what we did is -- just for the U.S. side, we have a very -- just like the little model, which means that every user can install our equipment, the water purifier very quickly. And even you don't know anything, you can just see the video or just see the manual, how to install it in 40 minutes. So it's very easy. And also for the filers, every user can just change the filers in 2 seconds. It's very easy, super, super easy. And -- if we talk about the China side, we have the DIY model for almost over 10 years. So it's very popular and everybody gets used it. And we are going to launch more and more models that just like the DIY and get user-friendly and every people -- every person once you use it, you will love it.

Yes. I may add some point to this question. I think probably the major concern is maybe you see the sign of the decline of our recurring revenue, especially the consumables -- that's mainly due to the technology innovation because so far, most of the products have longer lifespan, which majorly represents the longer lifespan of the filters. And the DIY, as Sam mentioned, definitely improve people's retention for using the water purifiers, and they tend to change the filters when the lifespan ramps up, and they can do it on their own, so it's easy and no actual cost affect the filters cost. About our consumable revenues on book that most products so far have only 2 futures, which slowed down the frequency of the futures. And this is what we see as industry evolution stage. So this may be last for a few years, but we still have this positive outlook for the recurring revenues in the future. And our last question is about government initiatives -- incentives for home appliance replacement, which helps to drive the domestic demand in 2025. And do you have any insight into better these programs may be renewed in 2026? I'll answer this question directly. Yes, you're correct. The government subsidy is the major factor for our growth in the 2025 so far. And as we can see for -- starting from the third quarter, some provinces has slowed down their pace in this incentives. And this is no longer a nationwide incentive actually. And we expect the revenue growth may be slowed down for the second half of 2025. And we cannot say for sure whether this program can be renewed for 2026, but we remain prudent on this point. Yes. Okay. I think we are running out of time now.

Okay. Thank you. Thank you for joining us tonight.

Yes. Thank you all for this.