Event: The company announced its 2023 results, and revenue growth exceeded expectations. In 2023, the company's revenue was US$13.731 billion, +3.6% YoY, excluding exchange rate impact +3.9%; net profit of US$976 million, +9.4% YoY; 2023H2 revenue of US$6.852 billion, +10.0% YoY; and net profit of 501 million yuan, +0.3% YoY.
The growth momentum of the professional level continues, and the growth rate of the consumer level has picked up significantly. 1) Professional brand Milwaukee's revenue was about US$89 billion, +10.3% YoY, accounting for 65% of revenue, +4pct YoY. Excluding the impact of exchange rates, the Milwuakee brand was +10.7% year-on-year, with North America +9.9%, Europe +13.7%, and other regions +13%. The market expansion strategy progressed steadily. Excluding exchange rate effects, Milwuakee 23H2's growth rate reached 12.7%, which is a significant recovery from 23H1's 8.7%. It is expected that the impact of low base superposition channels will weaken.
2) Consumer tool brands such as Ryobi had annual revenue of about 3.9 billion US dollars, -8.9% year-on-year. Among them, 23H2 showed a positive year-on-year growth rate of +5.2%, accounting for about 28% of annual revenue, or -4 pct. 3) Floor care business revenue was approximately US$940 million, +1.5% year-on-year, accounting for about 7% of annual revenue.
Gross profit margin continued to rise. Market expansion & marketing withdrawal led to increased cost investment, and net interest rate declined slightly. The company's net profit margin in 2023 was 7.1%, or -1pct; of these, gross margin continued to increase, reaching 39.5%, +0.2pct year over year, mainly benefiting from the increase in the share of high-margin professional-grade products, the increase in the share of battery sales, and new product sales. In 2023, the company's expense ratio was 32.2%, +1.3 pct year on year, of which the sales rate was 17.1%, compared to marketing investment during the storage period; the R&D expense rate was 4%, +0.3 pct year on year; the financial expense ratio was 0.9%, +0.4 pct year on year, mainly due to the increase in the company's loan interest rate in 23. Along with the improvement in the company's cash flow, loan repayment is also expected to optimize expenses.
Operating capacity was greatly improved, and free cash flow reached a record high. Along with channel removal and supply chain optimization, the company's total inventory decreased by 31 days year-on-year, with finished products reduced by 29 days and raw materials by 2 days; as of the 2023 annual report, the company's free cash flow reached US$1.34 billion, +136% year-on-year, and the book cash balance reached US$953 million.
Investment advice: Along with channel inventory replenishment, the company's operating quality has improved significantly, and performance is expected to continue to recover. At the same time, market expansion and product expansion drive the core brand Milwuakee will continue to grow, and it is expected to maintain double-digit growth for a long time. The company has maintained a considerable dividend ratio for a long time, taking into account stability and growth, and long-term value is prominent. We expect the company to achieve operating income of US$149.11/164.74/18.361 billion in 2024-2026 and net profit to mother of US$12.02/14.00/US$1,587 billion, corresponding PE of 19.42/16.67/14.71 x, maintaining an “incremental” rating.
Risk warning: Overseas demand has declined sharply; international trade relations fluctuate; new business development falls short of expectations.