Main points of investment:

Q3 revenue performance is in line with expectations. In the first three quarters of 2023, the company realized operating income of 4.431 billion yuan, an increase of 4.03% over the same period last year. The net profit attributed to shareholders of listed companies was 360 million yuan, an increase of 28.16% over the same period last year. The net profit after deduction was 346 million yuan, an increase of 31.25% over the same period last year. Among them, Q3 achieved an operating income of 1.551 billion yuan in the single quarter, an increase of 6.56% over the same period last year, a net profit of 99 million yuan belonging to shareholders of listed companies, an increase of 151.55% over the same period last year, and a net profit of 100 million yuan after deducting non-return, an increase of 184.72% over the same period last year. The company's overall income and performance are in line with our expectations.

Rigid demand kitchen electrical toughness is highlighted, the company's all-channel integration is actively promoted. 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, through Huadi, Batek, Huadi home multi-brand strategy to meet the needs of different markets for different prices and functional products, multi-dimensional promotion covers all levels of market segments. In addition, online channels maintain stable cooperation with e-commerce platforms such as JD.com, Tmall, SUNING, Pinduoduo, Douyin and Xiaohongshu. In terms of engineering channels, the company continues to open up high-quality customers in the housing and installation enterprises, and actively promote the integrated development of all channels.

Q3 profitability improved compared with the same period last year. The company achieved a sales gross profit margin of 41.79% in the first three quarters of 2023, an increase of 0.57pct over the same period last year, of which Q3 single-quarter sales gross profit margin reached 42.61%, year-on-year / month-on-month ratio + 2.55pcts/+0.05pct, respectively, and the gross profit margin rebounded steadily. In terms of period expense rate, the sales expense rate in the first three quarters of the company decreased to 24.01% compared with the same period last year, the management expense rate reached 4.66%, increased 0.52pct, and the financial expense rate was-0.16%, which increased 0.21pct over the same period last year. In addition, the R & D expense rate decreased to 3.95% compared with the same period last year, and finally recorded a net sales interest rate of 8.17% in the first three quarters and 6.42% in Q3 single quarter. Year-on-year + 3.60pcts, profitability improved significantly.

Maintain the "overweight" investment rating. We maintain our previous profit forecast for the company from 2023 to 2025, and expect to achieve a net profit of 5.31 million yuan, an increase of 270.9%, 10.1% and 8.5% respectively over the same period last year, corresponding to a current price-to-earnings ratio of 9 times / 8 times / 8 times. The company still has advantages in traditional kitchen appliances such as tobacco stoves, and new categories represented by integrated cookers and integrated cooking centers are expected to contribute income increment. The overall business performance remains robust, maintaining the "overweight" investment rating.

Risk hints: real estate policy fluctuation risk; raw material price fluctuation risk.