2023 results slightly exceeded our expectations
The company announced 2023 results: revenue of US$13.731 billion, up 3.6% year on year; net profit to mother of US$976 million, down 9.4% year on year, corresponding to earnings per share of $0.53. H2 revenue in 2023 was US$6.852 billion, up 10.2% year on year, and net profit to mother was US$501 million, up 0.3% year on year. The performance slightly exceeded our expectations, mainly due to the consumer business exceeding expectations in the second half of 2023.
The growth rate of power tools improved in the second half of the year, and diversification and expansion of the region went smoothly. By product, power tool revenue in 2023 was US$12.795 billion, up 3.8% year on year, the main driving force for revenue growth; floor care business revenue was US$937 million, up 1.3% year on year. By region, the company's revenue in North America was US$10.513 billion, up 2.7% year on year; European revenue was US$2,093 billion, up 8.6% year on year; revenue from other regions was US$1,125 billion, up 2.8% year on year.
The company's profitability has been rising year over year for 15 consecutive years. With the growth of high-value products in Milwaukee and the launch of new products in the aftermarket battery business, the company's comprehensive gross profit margin was 39.5% in 2023, an increase of 0.1 ppt over the previous year.
The company's net interest rate in 2023 was 7.1%, down 1.0ppt year on year, mainly due to the increase in the company's sales expenses brought about by promotions and the increase in the company's R&D expenses due to new product development. The R&D expense rate/sales expense ratio increased 0.3/0.6ppt year on year in 2023. The company's inventory turnover in 2023 was 1.81, up 0.91 year over year, and operating cash flow was US$2.04 billion in 2023 and US$1,233 billion in 2022.
Development trends
Inventory removal is nearing its end, and demand for terminals in the industry is weak, waiting for interest rates to be linked to real estate. After experiencing storage removal in 2H22 and 2023, inventory has now returned to normal levels. In the future, we need to continue to pay attention to future interest rate cuts driving demand for terminal consumption. According to the US Bureau of Economic Analysis, hardware tool terminal consumption fell 3.8% year on year in January 2024. Since demand for terminals in the industry is still weak, the inventory sales ratio is still at a high level.
Demonstrating corporate capabilities during the headwind cycle, the company guides unit growth in 2024. Over the past two years, the company has shown excellent management of American-like companies and the growth momentum of Chinese-like companies. The company's advance planning promoted operational optimization and achieved better performance and cash flow during the downturn period. In terms of business, the return of the US manufacturing industry and infrastructure investment have boosted demand for professional-grade products. Industry dividends are basically occupied by the company's core brands, making it possible to achieve strong growth against the trend. Milwaukee recorded sales increased 10.3% in 2023. The company revealed at a public meeting that the growth rate of the consumer business changed from negative to positive in the second half of the year, with a year-on-year increase of 4%, and a double-digit decline in the first half of 2023. The company predicts that the company's revenue will grow by a medium number of units in 2024, and the main product, Milwaukee, is expected to grow by double digits.
Profit forecasting and valuation
We introduced the 2024/2025 EPS forecast of $0.6/0.68. The company's current stock price corresponds to 20.1/17.8 times P/E in 2024/2025. We gave it 25 times P/E in 2024. We maintained our target price of HK$115.49, with 22% room to rise, and maintain the industry's outperforming rating.
risks
Expectations of US interest rate cuts have been delayed; promotion of new products falls short of expectations.