Matters:
The company released its three-quarter report for 2023. 23Q1-3 revenue was 2.63 billion/basically the same, with net income of 26.84 million/ -128.3%, not 100 million/ -198.8%; 23Q3 revenue of 990 million/ +9.5%, net of 86 million/ -418.9%, deduction of -110 million/ -316%, net loss of +558% /non-124% after reduction of impairment.
Commentary:
23H1: Retail sales are growing steadily, and the bulk is under pressure. 23H1 domestic/foreign revenue is 1.33 billion, YOY +6%/-31%; domestic split retail/engineering is 93/3.7 billion, YOY +18%/-16%; retail e-commerce, home improvement, 6801/64.6 million, YOY +18%/+4%.
Retail channel reform: The company's management was adjusted in April '22. After Wang Jia becomes president, comprehensive reforms will be carried out to address the aging of dealers. Based on external environment optimization+internal style of play, strategic adjustments will be carried out during the year, mainly focusing on the following points: 1) Financial strengthening of receivables management. 2) Optimize and streamline the organizational structure. 3) Channel: Sorting out the overseas sector. 4) Marketing: Adjust subsidy policies and increase product promotion. 5) Production: fine management, digitalization, automation.
Channel expansion is progressing steadily. 1) Store opening strategy: blank market supplement+mature market encryption. 2) Home improvement:
Vigorously develop cooperation with decoration companies to seize front-end traffic. 3) Dealers: 23 years of price control to reduce middleman price differences, and at the same time support second-tier dealers with outstanding performance.
Intelligence+customer promotion unit price. 1) Smart toilets: Smart products are mainly smart toilets. In '22, sanitary ceramics accounted for about 50% of revenue, and smart toilets accounted for about 10% of revenue. 2) Increase customer unit price: It will optimize the product matrix and increase the hardware connectivity rate to achieve an increase in customer unit prices.
Gross margin improved year over year, and net profit was mainly disturbed by impairment. 23Q3 gross profit margin was 28.8% /year on year +4 pcts/month on month +4.6 pcts, or mainly due to falling raw material costs and internal cost reduction and efficiency; sales/management/R&D/financial expense ratio was -1.8/flat /+0.5/+2.3 pcts to 7.9%/6.6%/4.3%/0.4%; comprehensive period expenses increased by 1.1 pcts to 19.2%; net profit margin increased by 1.1 pcts to 19.2%; net profit margin was -8.7%, excluding impairment, net interest rate of +10.3/+5 pcts to 12.4% /9.8% year on year.
In a period of strategic adjustment, impairment affects profit-side performance. It is expected that in '24, it will go to battle lightly and maintain a “push” rating. Currently, the company is in a critical period of strategic adjustment. Sorting out the dealer system and product structure is worth looking forward to. Short-term performance may be under pressure during the channel optimization process. It is expected that 24 years after the risk of impairment is reduced, it is expected that it will enter the market lightly 24 years after the risk of impairment is reduced.
Based on this, considering the performance of the first three quarters, we expect net profit for 23-25 to be 0.19/2.41/290 million yuan (237/300 million yuan before 23-24), corresponding to 156/12/10X; referring to the relative valuation method, we give 16X for '24, corresponding to the target price of 10 yuan, maintaining the “push push” rating.
Risk warning: The real estate market falls short of expectations, and large fluctuations in profits due to exchange rate fluctuations, etc.