Incident: 2023Q1 achieved operating income of 4.1 billion yuan, +42.46% year on year, and net profit of the mother was 17 million yuan, +11.67% year on year.
The machine business contributed to a sharp increase in revenue. The company's revenue increased sharply year over year, mainly due to an increase in orders from the vacuum cleaner OEM business and an increase in sales revenue from the OEM business. According to Tmall data, sales for Chase 23Q1 were +517% year over year, a significant increase over the previous year.
The increase in the share of OEM business with relatively low gross margin and the increase in inventory impairment claims slightly affected the company's profit level. The gross margin of the 2023Q1 company was 13.76%, -1.69pct year-on-year, and the net profit margin was 4.94%, -1.2pct year-on-year. We expect the decline in overall profit margins to be due to an increase in the share of revenue from the OEM business, where net interest rates are low. In addition, the company's asset impairment loss was 59,000 yuan, or -96.1% year on year. According to the company's annual report for '22, inventory accrual increased significantly year-on-year. Among them, inventory accrual amount increased more at the end of '22 compared to '21. We expect 23Q1 to maintain this trend, causing the overall net interest rate level to decline year-on-year. 2023Q1's quarterly sales, management, R&D and financial expenses rates were 1.48%, 5.54%, 3.07%, and -0.66%, respectively, compared to -0.05, -0.4, +0.04, and -1.57 pct. The financial fee rate declined year-on-year. We expect the company to continue the situation in its annual report for '22. Fluctuations in the financial expense ratio are due to increased exchange earnings.
On the balance sheet side, the company's monetary capital+transactional financial assets in 2023Q1 were 502 million yuan, 10.56% year on year, inventory was 270 million yuan, -5.78% year on year. The total notes and accounts receivable were 558 million yuan, +54.14% year on year. In terms of turnover, the turnover days for the company's inventory, accounts receivable and accounts payable in 2023Q1 were 72.36, 116.17 and 154.23 days, respectively, compared to -25.9, +2.85 and +39.58 days compared to -25.9, +2.85 and +39.58 days. In terms of cash flow, 2023Q1's net cash flow from operating activities was -16 million yuan, or -115.13% compared with the previous year. Of this, cash from purchasing goods and receiving labor payments was 225 million yuan, +14.1% year-on-year.
Investment suggestions: The company's machinery business has increased significantly, and its revenue share has increased markedly; revenue and profit from the hose and parts business may be expected to recover sequentially and gradually improve in the future. As overseas inventories are gradually removed, the revenue growth rate of the company's export hose fittings business is expected to recover; the machine business is tied to brands such as the search for leading cleaning appliances, and subsequent order growth is more guaranteed. According to the company's quarterly report, we have not changed our profit forecast for the time being. We expect the company's net profit to the mother for 2023-2025 to be 1.8/244/290 million yuan respectively; the corresponding dynamic valuations are 11.8x/9.1x/7.5x, respectively. Maintain an “increase in holdings” rating.
Risk warning: risk of fluctuations in raw material prices; risk of market competition; risk of alternative products; exchange rate risk; OEM penetration rate falling short of expectations, etc.