Incidents:

The company disclosed its three-quarter report. In the first three quarters, it achieved operating income of 2.194 billion yuan, a year-on-year decrease of 11.76% (after adjustment), and realized net profit of 304 million yuan, an increase of 32.85% over the previous year.

Comment:

Revenue for the third quarter increased year over year. In 2023Q3, the company achieved revenue of 799 million yuan in a single quarter, an increase of 3.1% over the previous year, an increase of 10.8% over the previous year; net profit of 184 million yuan, an increase of 151.9% over the previous year, an increase of 139.2% over the previous year. 23Q3 gross margin/net profit margin was 36.39%/24.89% respectively, up 5.01 pct/14.65 pct year on year and 1.48 pct/14.13 pct month on month. Sales/management/R&D/financial expenses for the first three quarters were 4.41%/8.71%/6.51%/-0.39% respectively, up -0.66pct/1.34pct/0.79pct/1.52pct year on year.

23Q3 The company's profit situation improved due to an increase in investment income and a reduction in income tax expenses. Among them, investment income for the third quarter reached 13.8704 million yuan, compared to -43.5085 million yuan for the same period last year. The depreciation of the RMB in the current period was small compared to last year, and the resulting investment losses in foreign exchange forwards and foreign exchange options decreased year-on-year. In addition, the transfer of 100% of shares in Xiamen Songlin Home Furnishing Co., Ltd., a wholly-owned subsidiary, also increased investment income. 23Q3 income tax - 39.913,200 yuan, mainly due to the increase in deferred income tax assets due to confirmed investment losses confirmed by Songlin Technology's disposal subsidiaries in the current period.

Divestment of “Songlin · Home” and focus on main business. On August 29, 2023, the company issued an announcement to transfer 100% of the shares of its wholly-owned subsidiary Songlin Home to Songlin at a transfer price of 195 million yuan. At present, the equity transaction has been completed, and the first share transfer payment of 100 million yuan has been received from Songlin Investment. Songlin Home has completed business registration such as changes in shareholder information, and the company no longer holds shares in Songlin Home Furnishing. The net profit of Songlin Home Furnishing in 2022 was -109 million yuan, and on July 31, 2023 it was -47 million yuan. The divestment of this business is conducive to raising the company's profit level.

Acquire the remaining shares of Becket and build a factory in Vietnam to adapt to changing trends in the industry. On October 19, 2023, the company announced the construction of a smart health hardware production base in Vietnam. The estimated total investment amount is not more than 50 million US dollars. The project is mainly aimed at supporting orders from overseas brand customers, which is conducive to enhancing competitiveness in overseas markets. On October 20, Songlin Technology announced that the company plans to use its own capital of 342 million yuan to purchase 49% of the remaining shares of the company's holding subsidiary, Becket. After the acquisition is completed, the company's shareholding ratio of Becket will increase from 51% to 100%. The investment is based on the “Health Hardware IDM” strategic layout considerations, and further strengthens the control of holding companies and promotes the rapid development of kitchen and health categories to enhance sustainable profitability.

Give the company an “increase in holdings” rating, and adjust the profit forecast according to the company's three-quarter report. The company's net profit from 2023 to 2025 is estimated to reach 360, 4.19, and 474 million yuan respectively, up 38%, 16%, and 13% year on year, with corresponding valuations of 16, 14, and 12 times.

Risk warning: Overseas demand falls short of expectations, and valuations and profit forecasts fall short of expectations.