2023 Results Exceed Our Expectations
The company announced its 2023 results: revenue +2% YoY to 7.8 billion yuan; net profit +394% YoY to 324 million yuan, net profit +652% YoY to 289 million yuan; of these, 4Q23 revenue +0.6% YoY to 2,253 million yuan, net profit +194% YoY to 180 million yuan, after deducting non-net profit +270% to 153 million yuan YoY, exceeded our expectations.
1) Demand continues to weaken, and the product structure is divided: due to the decline in real estate demand, the company actively explores new scenarios (such as home improvement, etc.). In 23, the company's dominant products, door and window hardware and door control revenue were +1%/+6% to 36/410 million yuan; due to lack of project capital, revenue from engineering products such as curtain wall components, stainless steel guardrails, door and window accessories was -9%/-17%/-4% year-on-year to 3.96, 2.01, and 616 million yuan. In terms of new categories, household and other construction hardware revenue increased by +1%/+20% year-on-year to 1.4/1.1 billion yuan respectively, accounting for a total increase of 2ppt to 32%. 2) The regional growth rate is divided, and the county town gradually became prominent: in '23, the regional revenue of the company's provincial capitals and prefecture-level cities was +2%/-3%, respectively, but with the company's active layout and product integration advantages highlighted, the county gradually accelerated, and the revenue of the county was +10% compared to the same period. 3) Decrease in raw materials, gross margin restoration: the average price of aluminum alloy, stainless steel, and zinc alloy was -6%/-12%/-14% year on year, and the company's comprehensive gross margin was +2ppt to 32.2% year on year (not excluding taxes and surcharges, same below). Among them, the gross margin of door and window hardware was +3.95ppt to 19% year over year, and household products were -1.8ppt to 30% year-on-year (mainly due to the decline in revenue of Haybes with high gross margin). 4) Expenses remained rigid, and the cost ratio was slightly diluted: the 23-year sales/management/R&D expense ratio was -0.6/+0.01ppt, with sales staff at the end of the year -11% to 6089 people, which led to an increase in per capita sales of about 5%; 5) Significant net margin restoration: due to increased gross margin, slightly diluted cost ratio, and decreased credit impairment, etc., the net interest rate in '23 was +3.3ppt to 4.2% year-on-year. 6) Continued excellent cash flow: Due to the company's continuous transformation of scattered orders, gross profit margin and cash flow continued to improve. The company's revenue ratio was +8.5ppt to 108.3% year over year, with accounts receivable items -505 million yuan year on year. However, due to the company's increase in the payout ratio, payable items were -661 million yuan year over year, and the net operating cash flow was -47% to 499 million yuan, and the corresponding net cash ratio was still as high as 154%.
Development trends
New scenarios such as counties and towns are gradually taking shape, and profits are expected to be released after revenue is accelerated. Looking ahead to the future market, we believe that the share of the company's counties and overseas sectors will gradually increase to 20 or 10%. After the company's active layout, ideology changes, and product integration, revenue is expected to gradually accelerate, contributing to the company's revenue growth rate.
We believe that at that time, the company is expected to usher in an inflection point where human efficiency increases and profits rise rapidly.
Profit forecasting and valuation
Due to weak demand, we lowered our net profit for 24 by 10% to $510 million and introduced net profit of 670 million yuan in '25. The current stock price corresponds to 24/25e 24/19x P/E. We maintained our outperforming industry rating and lowered our target price by 16% to 46 yuan, corresponding to 24/25e 34x/26x P/E, implying 19% upside.
risks
Demand for completion exceeded expectations, the release of manpower fell short of expectations, and the development of new regions fell short of expectations.