Incidents:
On October 31, Qisheng Technology released its three-quarter report for 2023:2023Q3 achieved revenue/net profit from net profit/ net profit from non-return to mother of 8.63/0.65/116 billion yuan, a year-on-year change of 27.18%/-6.17%/36.62%; in 2023, Q1-Q3 achieved revenue/net profit from net profit from non-return to mother of 23.86/1.87/218 billion yuan, up 12.98%/11.92%/4.06% year on year.
Investment highlights:
The Q3 revenue performance was impressive, with profit after deducting a high year-on-year increase. 2023Q3 achieved revenue/net profit from net profit/net profit after deduction of net profit of 8.63/0.65/116 million yuan, a year-on-year change of 27.18%/-6.17%/36.62%. The company's orders for the first three quarters remained stable. Compared with the same period last year, there was a significant recovery in orders, and Q3 revenue and net profit after deducting non-retracted net profit achieved double-digit growth.
1) Overseas market: The company mainly sells in overseas markets. The North American market accounts for more than 85% of product sales, and 2023Q1-Q3 US market orders increased 10% year-on-year. The company maintains major customers while expanding new customers. The smart electric bed category and new customer growth are worth looking forward to.
The company expects the growth rate of the US market to remain around 10% in 2024, showing a steady growth trend. The growth rate of 2023Q1-Q3 orders in the European market was over 70% year on year.
2) Domestic market: Sales in the domestic market have increased significantly, currently accounting for less than 10%. The benefits of the “Schuford” brand were evident, and 2023Q1-Q3 orders increased by more than 50% year over year. Up to now, the company has opened more than 60 stores in total, and adopted a strategy of online and offline sales cooperation to explore the domestic market. In addition, the company has cooperated with pension institutions, confinement clubs, hotels, etc. to pilot smart bed application scenarios.
Weakening pressure on the cost side combined with product structure optimization led to a significant increase in gross margin. As of 2023Q3, the gross margin/net margin was 35.09%/7.77%, respectively, with a year-on-year change of +3.81/-0.04pct. The company's gross margin increased significantly. The main reason was that the Q3 dollar exchange rate against the RMB remained high, shipping costs declined, and product structure optimization prompted customers to increase the purchasing ratio of high-margin products.
The expense ratio was relatively stable during the period, and the number of days of turnover of accounts receivable improved markedly. As of 2023Q3, the sales/management/R&D/finance expense ratio was 11.90%/9.27%/4.82%/-2.03%, respectively, a year-on-year change of +2.33/-1.93/-0.49/+4.28pct. As of 2023Q3, the company's net cash flow from operating activities was 136 million yuan, a year-on-year decrease of 60.58%, and the number of accounts receivable turnover days was 37.50 days, a year-on-year decrease of 17.38 days. The company's supply chain continued to improve, and the product structure was optimized, driving improvements in the cash flow situation.
Profit forecast and investment rating: As a smart electric bed leader, the company benefits from the increase in the penetration rate of electric beds in the long term. Relying on the steady development of existing major customers and continuing to develop new customers, overseas sales are expected to continue to rise, domestic sales accelerate the online and offline layout of independent brands, and are optimistic about long-term growth. We estimate that in 2023-2025, the company's operating income is 30.06/34.97/4,048 billion yuan, and net profit is 228/3.39/373 billion yuan respectively, corresponding to PE valuations of 18/12/11x, maintaining the “increased holdings” rating.
Risk warning: Market competition pattern worsens, raw material price fluctuations, exchange rate fluctuations, overseas market risks, store opening progress falls short of expectations, and shipping costs fluctuate.