The company's orders have improved since 2023Q2, and 2023Q3 performance has improved year over year. According to the company's announcement, due to inventory removal from overseas customers, the company's 2023H1 revenue and profit declined, but orders have gradually returned to normal since 2023Q2. 2023Q3 achieved revenue of 1.21 billion yuan, a year-on-year increase of 22.1% and a month-on-month increase of 12.6%; realized net profit of 131 million yuan, an increase of 0.7% year-on-year and an increase of 15.4% month-on-month; and the year-on-year growth rate of revenue and net profit to mother changed from negative to positive in a single quarter. The company achieved a gross profit margin of 27.3% in 2023Q3, up 1.75pct year on year and 2.61 pct month-on-month, the best level since 2020Q4.
If the US enters a cycle of interest rate cuts in 2024, the company's business may accelerate significantly. The company's overseas business contributed the main revenue, achieving revenue of 4.19 billion yuan in 2022, of which overseas revenue was 3.24 billion yuan, accounting for 78%. With 2023H1, the company achieved operating revenue of 1.88 billion yuan, of which overseas revenue was 1.43 billion yuan, accounting for 76%. According to the company's prospectus, the share of revenue generated in the US from 2017 to 2019 was 59.1%/62.6%/61.8%, respectively, accounting for 76%/79% of the company's export sales.
Thailand's Jianlin Phase II is about to be put into operation. In order to diversify the potential risks of uncertain trade relations between China and the US, the first stop of the company's overseas base in 2019 was Jianlin, Thailand, with an annual production capacity of about 450 million yuan. After years of run-in manufacturing costs, the manufacturing cost is close to domestic manufacturing. Based on the successful experience, the company built Thailand's Jianlin Phase II in 2023. According to the announcement, it is expected to be completed in 2024Q1, with an annual production capacity of about 550 million yuan. The new production line is expected to gradually implement mass production in 2024, which is expected to drive the development of related upstream and downstream industries in countries and regions along the route. The company also set up a wholly-owned subsidiary in the US in early 2023 to strengthen local service capabilities. In the future, the company plans to further expand its international layout and expand the European and Belt and Road markets.
The leading hardware production expansion project in Zhangzhou is expected to provide incremental performance in 2024. China's hardware market space is vast. According to Jiashi Consulting, China's bathroom hardware sales revenue may exceed 350 billion yuan in 2023, an increase of 10% + over the previous year. In November 2021, the company changed some of its listed fund-raising projects and plans to invest in the Zhangzhou Jianlin Hardware Faucet Production Expansion Project. The total investment of the project is 160 million yuan, forming a production scale with an annual output capacity of 4 million sets of hardware faucets. The production expansion project is expected to contribute revenue in 2024, laying a solid foundation for the company to enter the ranks of high-end precision manufacturing.
Covered for the first time, a “gain” rating was given. The estimated net profit from 2023 to 2025 will be 4.20/497/583 million yuan, up -8.38%/18.52%/17.22% year-on-year, corresponding PE 13.91/11.74/10.01 times.
Risk warning: downstream demand falls short of expectations, risk of exchange rate fluctuations, performance falls short of expectations