3Q23 performance is in line with our expectations

The company announced 3Q23 results: 1) 1-3Q23 company income 5.514 billion yuan, year-on-year + 5.92%; net profit 659 million yuan, + 30.16%; deducting non-return net profit 564 million yuan, + 48.11% year-on-year. 2) corresponding 3Q23 income 1.97 billion yuan, year-on-year + 6.66%; net profit 262 million yuan, + 21.2% year-on-year; deducting non-return net profit 215 million yuan, + 14.95% year-on-year.

The company's performance is in line with our expectations.

Offline channels continue to be repaired, and revenue growth remains robust. 1) according to the data of the National Bureau of Statistics, the completed area of new houses in 1Q23/2Q23/3Q23 is + 15% and 22% respectively compared with the same period last year. Household lighting as a post-cycle category of real estate has fully benefited, driving the company's revenue to continue to improve, and 1Q23/2Q23/3Q23 revenue is + 3% and 7% respectively compared with the same period last year. 2) 3Q23 enters the peak sales season of lighting products, offline passenger flow continues to repair compared with the same period last year, overlay companies strengthen market launch and active marketing, single-store output continues to increase, we estimate that home channels still recorded good growth in the third quarter compared with the same period last year. 3) the competition on the online platform is fierce, and the company's e-commerce channel has been adjusted since 2Q22. At present, the product structure and price strategy have been optimized, and the business performance is gradually improving. 4) Shang Zhao business is affected by seasonal factors, while the short-term demand of some segments of the industry falls, and we estimate that its performance is relatively stable.

The effect of business change continues to be released, and profitability increases steadily. 1) benefiting from the cost optimization brought about by the internal platform and digitization, 3Q23's gross profit margin increased from + 3.6ppt to 40.8% year on year, improving quarter by quarter, and has now been restored to a historically high level. 2) the 3Q23 sales expense rate is from + 3.6ppt to 18.9% compared with the same period last year, which is mainly due to the company's increased efforts to put into the market, but the management expense rate and R & D expense rate are still being optimized and are declining compared with the same period last year. Taken together, 3Q23's parent net interest rate is + 1.6ppt to 13.3% compared with the same period last year, and profitability continues the previous improvement trend. 3) the cash flow of operating activities of 1-3Q23 company is 1.042 billion yuan, which is much higher than the level of net profit, and the operating quality is stable.

Trend of development

The general lighting market is affected by the real estate post-cycle, and the overall demand is not good in recent years. However, we have noticed that the market of general lighting, kitchen electricity and civil electricians in the post-cycle of real estate has shown a trend of concentration and steady growth. Over the past two years, Opp has continued to promote platform, digitization and other internal business changes. Since the beginning of this year, revenue has returned to growth, and profit margins have increased compared with the same period last year.

Profit forecast and valuation

Considering that the demand for categories after the real estate cycle is still relatively weak, we have slightly reduced our 2023 Universe revenue by 4% to 7.927 billion yuan / 9.03 billion yuan in 2024, but because the company's profitability has improved slightly better than expected, we basically keep our profit forecasts for 2023 and 2024 unchanged. The current share price corresponds to 16.5 times of 2023 / 2024 / 14.2 times of Pram E. To maintain the outperform industry rating, considering the recent improvement in sector valuations, we have raised the target price by 6.4% to 25.0 yuan, corresponding to 19.2 times / 16.5 times Phand E in 2023 and 2024, with 16.6% upside space.

Risk

The risk of market demand fluctuation; the risk aggravated by market competition; the risk of raw material price fluctuation.