Event: The company released its 2023 performance report. During the reporting period, the company achieved operating income of 3,642 billion yuan, up 2.5% year on year; net profit to mother of 294 million yuan, up 6.29% year on year; deducted non-net profit of 218 million yuan, up 14.07% year on year. With 2023Q4, the company expects to achieve operating income of 1,095 million yuan, an increase of 2.86% year on year; net profit to mother of 128 million yuan, an increase of 13.97% year on year; deducted non-net profit of 109 million yuan, an increase of 14.25% year on year.
Cost reduction and efficiency led to an improvement in profit margins, and cash flow increased dramatically. In 2023, the company's net profit margin was 8.09%, up 0.29 pct year-on-year. The company continues to deepen technological innovation and cost leadership strategies, build a digital R&D supply and marketing system, improve the company's level of intelligent and flexible manufacturing, and achieve outstanding results in cost reduction and efficiency. At the same time, the company continues to optimize the supply chain, improve supply chain efficiency, and drive down raw material procurement costs. In terms of cash flow, the company achieved net operating cash flow of 619 million yuan in 2023, an increase of 150.73% over the previous year, mainly benefiting from factors such as order growth, inventory and supplier procurement management optimization.
The household development & internationalization strategy is progressing steadily, and operating income has bucked the trend. The company continues to advance the household strategy, accelerate channel transformation and decline, strengthen retail channels, home improvement channels, and hardcover major channels, and actively lay out new channel businesses such as partial renovation and handbags. At the same time, the company comprehensively promotes the internationalization strategy, accelerates the expansion of overseas channels, and realizes a dual cycle at home and abroad. The company's overseas business reached 234 million yuan in 2022, an increase of 43.16% over the previous year. It is expected that it will continue to grow rapidly at a low base in the future.
Policy support is expected to gain strength, and low valuations are promising. Recently, real estate-related policies have gained strength: 1) the central bank announced a 0.5 percentage point reduction in the reserve ratio to provide about trillion dollars of long-term liquidity; 2) the State Information Office stated that the financial industry must strongly support the real estate industry and proposed specific measures; 3) Guangzhou announced the lifting of restrictions on housing purchases of 120 square meters or more within the restricted area. We believe that the company's fundamentals are still maintaining a steady, moderate and positive trend. There is plenty of room for future channel layout, and subsequent policies are expected to continue to gain strength, thereby improving related expectations, and we are optimistic that the current low valuation will be boosted.
Investment advice: The company continues to deepen its all-category and omni-channel strategic layout. The category expansion performance is outstanding, channel strength continues to increase, and there is broad room for future growth. The company is expected to achieve basic earnings of 1.91/2.25/2.58 yuan per share in 2023/24/25, corresponding PE is 9X/8X/7X, maintaining the “recommended” rating.
Risk warning: the risk of the real estate market falling short of expectations, the risk of household consumption falling short of expectations, the risk of overseas market layout falling short of expectations, and the risk of increased market competition.