By Brian Lantier, CFA
NASDAQ: VIOT
READ THE FULL VIOT RESEARCH REPORT
Viomi Technology (NASDAQ: VIOT) reported second-half results prior to the market open on March 25 that fell short of our expectations, largely due to a shift in demand driven by the Chinese government's water purification subsidy program. We expected that some demand would be pulled forward into the first half of 2025 as a result of these subsidies, when the policy was enacted. However, we anticipated that the Chinese shopping holidays in November and December would help lessen the impact on second-half results, but that doesn't appear to be the case.
Viomi's total revenues for the second half of 2025 were RMB 951 million ($136 million), missing our revenue forecast by RMB 540 million, or 36%. Revenues were down 24% versus the same period a year ago and 36% sequentially, as sales that might normally have occurred in the second half were pulled forward into the first half when consumers became aware of the subsidy program.
The company's relationship with Xiaomi remains vital to its continued success, with 90% of total revenues derived from Xiaomi (down slightly from 92% in the first half of 2025. As we've noted before, the company's reliance on Xiaomi poses a significant risk for investors. However, the relationship between Xiaomi and Viomi appears strong, and we do not envision the structure changing.
The company's gross margin declined in the second half of 2025, and we believe there may be lingering pricing pressure in the market, as some competitors have continued to offer discounts despite the elimination of government subsidies for water purifiers in 2026.
The company reported $3.0 in net income for the second half of the year (mostly due to non-operating gains, interest income, and tax credits), or $0.04/ADS, which fell significantly short of our $0.20/share forecast.
In the company’s second-half earnings release, it announced that the Board of Directors authorized a special dividend of $0.022/share or $0.066/ADS for shareholders of record on 4/6/26, payable on 4/15/26. For new investors, this is an attractive payout (4.5%-5.8% depending on the price at which the shares are purchased) and could help to provide a bit of a floor for the stock.
MODEL UPDATE AND VALUATION
We are electing to be conservative with our estimates for 2026 and 2027, as the company's international growth plans are still being developed and the success of its operations in these new markets isn't guaranteed.
We are introducing a 2027 revenue estimate of RMB 2.1 billion, roughly in line with the company's 2024 revenue. We do believe that the company can possibly exceed this growth forecast, but that will require executing in new markets. Our USD earnings per ADS for 2026 and 2027 are $0.12/ADS and $0.17/ADS, respectively. This adjustment is obviously a major change from our previous forecast of $0.45/ADS for 2026 but we think it is the best approach until we can see sustained growth from the company. With the stock trading at effectively a 52-week low, we think the challenges facing the business are accurately reflected in the stock, and Viomi represents a deep value in a market that remains pricey by historical standards.
We believe it is unlikely that Viomi will regain an average market multiple in the near term, given the challenging comparisons with the first half of 2025. However, in the back half of 2026, investors should start to look at the prospects for 2027. We believe the company would be fairly valued at 12-14 times our 2027 estimate of $0.17/ADS, so we are adjusting our 12-month target to $2.25/ADS.
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