By Brian Lantier, CFA
NASDAQ: VIOT
READ THE FULL VIOT RESEARCH REPORT
Viomi Technology (NASDAQ: VIOT) reported first-half results before the market open on August 27th that fell short of our expectations, as the market struggles to find balance after the national water-purification subsidy program in China was not renewed in 2026. We have had some difficulty determining exactly how much demand was pulled forward into 2025 as a result of these subsidies, but it is clear, after reviewing the company's first-half results and those of other home appliance companies focused on the Chinese market, that the impact was far greater than we expected. We do feel that comparisons will get easier for the balance of 2026; however, given the nature of the company's products, it is unclear how quickly the domestic market will resume its growth trajectory. The Chinese shopping holidays in November and December should help second-half results, but we are electing to be conservative with our new forecasts.
It is worth noting that home goods sales (even those still eligible for subsidies) fell roughly 30% in China in the first half of 2026 as the effectiveness of broad subsidies has diminished over time. In effect, consumers have capitalized on these programs in 2024 or 2025 to upgrade water purification, heating, refrigeration, or cooking appliances, and given the long life expectancy of these appliances, there simply aren't enough domestic consumers to support the same level of demand each year. Companies with thriving international businesses and broad product lineups, such as Haier Smart Home (HKSE: 6690.HK), have weathered this period better than companies with less diverse product lineups or greater sales concentration in China.
While Viomi has not provided official guidance for the balance of 2026 and 2027, other large home appliance manufacturers based in China largely project a gradual recovery of the market in the back half of 2026, driven largely by International growth and stabilization of the domestic market. We believe that comparisons with the second half of 2025 will also become easier (the demand decline began in the second half of 2025), so investors should be able to see an improving trend in sequential sales.
We are electing to be conservative with our estimates for 2026 and 2027, as the company's expansion plans are as yet unproven. Rather than assuming the company will rapidly expand into new markets, we now assume the core business will grow in the low single digits, and that successful international expansion could provide upside to our model.
We are updating our revenue estimates to $230 million for 2026 and $241 million for 2027, which we believe is overly conservative, but we would like to see the company demonstrate a return to growth over a few periods before establishing higher goals. Our USD earnings per ADS for 2026 and 2027 are reduced to a loss of ($0.09)/ADS and ($0.05)/ADS, respectively. With nearly $2/ADS in cash on the balance sheet, we think the company's shares are attractively valued at current prices, and its buyback program could provide additional support.
We believe the company would be fairly valued at an industry-low 0.6x our 2027 Revenue estimate of $241 million, so we are maintaining our 12-month target at $2.25/ADS. We would note that if the company were to expand its share buyback program or reach a major offline retail distribution agreement, it could change our outlook, and the company's shares could find support sooner than anticipated.
We would encourage investors to review our full updated research report for Viomi Technology.
SUBSCRIBE TO ZACKS SMALL CAP RESEARCH to receive our articles and reports emailed directly to you. 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 payments totaling a maximum fee of up to $50,000 annually for these services provided to or regarding the issuer. Full Disclaimer HERE.