The inflection point of the economy proved that revenue was corrected year on year, shipping charges fell, and gross margin was greatly improved. The company released a three-quarter report. In the first three quarters of 2023, it achieved revenue of 2,057 million yuan/yoy -2.93%, net profit of 407 million yuan/yoy +9.76%, and net profit of 397 million yuan/yoy +18.32% after deducting net profit of 397 million yuan/yoy +18.32%. Among them, 2023Q3 achieved revenue of 725 million yuan/yoy +5.45%. After three quarters of negative revenue growth, the company's commercial kitchen equipment (commercial refrigerators and Western kitchen equipment) prosperity actually improved. 2023Q3 has net profit of 138 million yuan/yoy +47.88%, net profit of 135 million yuan/yoy +56.47% after deducting net profit of 135 million yuan/yoy +56.47%. It is optimistic about the release of new products such as smart french fries machines and universal steamer ovens in 2024. We maintain our profit forecast. We expect net profit of 5.48/6.59/814 million yuan for 2023-2025, yoy +22.0%/+20.4%/+23.4%, corresponding to EPS 1.30/1.57/1.93 yuan, corresponding to EPS of 1.30/1.57/1.93 yuan. The current stock price corresponding to PE is 21.9/18.2/14.8 times, maintaining the “buy” rating.
Sales and management rates were further optimized, excluding the impact of foreign exchange on operating performance, which continued to rise month-on-month on the gross margin side: the 2023Q3 gross margin was 44.37% /yoy10.91 pct, +3.15 pct over the previous month, returning to pre-pandemic levels, mainly benefiting from lower shipping costs and raw material costs, and a significant increase in profitability. There is still room for improvement in gross margin due to the subsequent high margin of new product release. Excluding fluctuations in financial expenses caused by exchange earnings (2023Q2 financial expense ratio is -7.64%, 2023Q3 is 1.61%), and looking only at gross profit and three fees, the company's operating profit margin increased by 3.75pct over the previous month, and business performance continued to improve. On the cost ratio side, the 2023Q3 sales/management/R&D expense ratio was 12.98%/5.11%/2.51% respectively. The three fees together accounted for 20.61% of revenue, -0.6pct over month, and continued to improve for three consecutive quarters.
Downstream prosperity continues, and waves such as the US strike and salary increases are expected to drive restaurant automation innovation (1) Traditional business: In July-September, retail sales of food service and drinking bars in the US increased 11.1%/8.8%/9.2% year on year, and the downstream boom remained high. In July-September, China's exports of refrigeration equipment such as refrigerators and freezers increased -5.1%/3.8%/16.3% year on year. The inflection point in overseas demand confirmed, and export growth in the fourth quarter is expected to continue under a low base.
(2) Smart business: Due to problems such as high inflation and labor shortages, various industries in the US recently held a large-scale strike. Among them, Ford agreed to raise hourly wages by 25%. At the same time, the US job market is strong, and it is becoming more difficult to recruit for low-end labor-intensive jobs (such as back kitchens). Fast food restaurants usually operate 7/24 hours. Major fast food companies may speed up the deployment of automated cooking equipment, and the popularity of the company's new products is expected to accelerate.
Risk warning: New product marketing progress falls short of expectations; shipping prices, raw material prices are rising, etc.