Main points of investment:

Q3 performance exceeded expectations. In the first three quarters of 2023, the company achieved operating income of 4.413 billion yuan, down 13.07% from the same period last year. The net profit attributed to shareholders of listed companies was 559 million yuan, an increase of 2.68% over the same period last year. The net profit after deduction was 492 million yuan, down 10.42% from the same period last year. Among them, Q3 achieved operating income of 1.343 billion yuan in the single quarter, an increase of 7.73% over the same period last year, realized net profit of 146 million yuan belonging to shareholders of listed companies, an increase of 20.06% over the same period last year, and realized net profit of 137 million yuan after deducting non-return to mother. the performance of Q3 company exceeded expectations by 19.33% year-on-year growth.

Rigid demand kitchen electrical toughness is highlighted, the company's channel coverage continues to promote. According to the total data of AVC, in the first three quarters of 2023, the cumulative retail sales of kitchen and sanitary appliances (smoke, stove, consumer, wash, inlay, collection, electricity, fuel, net) reached 116.1 billion yuan, an increase of 3.4% over the same period last year. Among them, the total retail sales of kitchen and bathroom rigid demand category was 69.1 billion yuan, an increase of 4% over the same period last year. According to the category, the retail sales of range hood was 22.1 billion yuan, an increase of 4% over the same period last year, the retail sales of gas stoves was 12.4 billion yuan, an increase of 1% over the same period last year, the retail sales of electric heating was 15.8 billion yuan, up 1% over the same period last year, and the retail sales of burning heat was 18.8 billion yuan, an increase of 9% over the same period last year. At the company level, the channel coverage is comprehensive, with chain stores, KA, e-commerce, engineering collection, building materials home decoration and other channels; as of 23H1, the company's channel resources are distributed in 32 provinces, municipalities and autonomous regions across the country, covering more than 330 prefecture-level cities and 2000 county-level regions, and has achieved a stable primary market coverage of 100%, secondary market coverage of more than 98%, and a significant increase in third-to sixth-level market coverage.

The gross profit margin improved quarter by quarter, and the net profit margin in the first three quarters reached the highest level since the listing. In the first three quarters of 2023, the company achieved a sales gross profit margin of 32.31%, year-on-year + 5.64pcts, of which Q3 single-quarter gross profit margin reached 35.59%, respectively + 6.59pcts/+3.78pcts. We expect that: 1) the proportion of domestic business with high gross margin has significantly increased and 2) raw material prices have dropped year-on-year and other factors. In terms of the period expense rate, the company achieved a sales expense rate of 13.25% in the first three quarters, year-on-year + 3.20pcts, and management / financial expense rate from + 0.75pct/+1.02pcts to 2.96%, respectively. In addition, the R & D expense rate slightly increased to 3.96% compared with the same period last year, and finally recorded a net sales interest rate of 12.67% in the first three quarters, year-on-year + 1.94pcts, a record high for the same period since listing.

Maintain a "buy" investment rating. We maintain our previous profit forecast for the company from 2023 to 2025, and expect to achieve a net profit of RMB 776 million, respectively, an increase of 41.0%, 15.3% and 10.7% respectively over the same period last year, corresponding to the current price-to-earnings ratio of 8-7-6. Considering that with the optimization of product and business structure, the company's profitability is expected to continue to improve, maintaining the "buy" investment rating.

Risk hint: raw material price fluctuation risk; exchange rate fluctuation risk; market competition aggravates risk.