Event: Jianlang Hardware released its 2023 annual report. The company achieved revenue of 7.802 billion yuan in 2023, an increase of 2% over the previous year, and net profit to mother of 324 million yuan, an increase of 393.89% over the previous year. Revenue for the fourth quarter was 2,253 billion yuan, up 0.57% year on year, and net profit to mother was 180 million yuan, up 193.62% year on year.
New categories are gradually gaining strength, and counties and overseas continue to be important growth sectors for the company. By category, revenue from door and window hardware systems was 3,587 billion yuan, accounting for 45.98%, up 0.9% year on year; revenue from household products was 1,388 billion yuan, accounting for 17.79%, up 1.42% year on year; revenue from other construction hardware products was 1,126 billion yuan, accounting for 14.43%, up 20.29% year on year. The faster growth rate was mainly due to the expansion of new products; door control hardware system revenue was 410 million yuan, accounting for 5.26% year on year increase of 6.37% year on year. Public construction products declined a lot due to the long project cycle and completion. Among them, revenue from door and window accessories was 616 million yuan, accounting for 7.9%, down 3.55% year on year; revenue from point-supporting glass curtain wall components was 397 million yuan, accounting for 5.09%, down 8.91% year on year; and revenue from stainless steel fence components was 202 million yuan, accounting for 2.59%, down 17.05% year on year. By region, the overall domestic market accounted for 90.12% in 2023, with a growth rate of 2.22%. Among them, the first-level market in counties accounted for more than 20%, and the growth rate was about 10%. The company's category integration and direct sales channel advantages continued to expand in the county market, and the revenue volume and share of the county are expected to accelerate; the overseas market accounted for 9.88%, the growth rate was 0.12%, of which Portuguese subsidiaries accounted for about 1%, and the others contributed to overseas sales channels. Overseas markets in 2023 were affected by factors such as the Federal Reserve's interest rate hike, financial constraints in emerging markets in Southeast Asia, and phased fluctuations in countries such as Vietnam, etc., and growth fell short of expectations. It is expected that with the launch of overseas information systems and more new products that meet overseas scenarios, overseas business is expected to return to a rapid growth channel in 2024. On a quarterly basis, the year-on-year revenue growth rates of Q1-Q4 companies were 4.83%, 2.31%, 1.53%, and 0.57%, respectively. The slight decline in Q4 growth is estimated to be mainly related to factors such as the strengthening of the company's credit management.
The fall in raw material prices led to a 2% + increase in gross margin, and costs were diluted slightly. The company's comprehensive gross margin in 2023 was 32.26%, an increase of 2.06 pct over the previous year. The main reason was that the price of key raw materials fell sharply year on year. Among them, the gross margins of door and window hardware systems, other construction hardware products, and household products changed by +3.95pct, +1.8pct, and -1.83 pct, respectively. The decline in household gross margin was mainly related to the phased performance fluctuations brought about by the subsidiary Haybes moving its factory. Traditional advantageous products such as door and window hardware and door control hardware continue to maintain high gross profit margins. The gross margin of household products is at a medium to high level, and the overall gross margin of other products is low. On a quarterly basis, Q1-Q4 gross margin showed a quarterly upward trend. In terms of the cost ratio, the company's expense ratio for the whole year was 25.15%, a year-on-year decrease of 0.98 pct, and the cost ratio was slightly diluted. On a quarterly basis, Q1-Q4 cost rates were 32.36%, 24.3%, 23.63%, and 23.05%, respectively. In terms of net interest rate, the annual net interest rate was 4.49%, an increase of 3.35 pct over the previous year.
The payout ratio has been rising steadily, and cash flow is healthy. The net cash flow from the company's operating activities in 2023 was 499 million yuan, a year-on-year decrease of 46.61%. The year-on-year decrease in cash flow was mainly due to an increase in pay-side activity. The annual revenue ratio was 108.3%, the year-on-year increase of 8.57pct, and the year-on-year payout ratio surged 24.69pct. The higher payout was mainly due to the impact of bills, factoring, etc. issued in 2022 due and payment in 2023. Overall, the cash flow situation was good.
Investment advice: Jianlang Hardware is a leading enterprise in the field of traditional construction hardware. It has a rich product system, a sound channel network, and outstanding comprehensive management capabilities. Subsequent growth points mainly come from collaborative promotion in the three areas of sinking market/overseas market+new scenarios+integrated product supply. Currently, the share of counties and overseas markets is relatively low. As the scale and share of these two types of scenarios continue to rise, its contribution to the company's revenue performance will gradually be reflected. The company's net profit from 2024-2026 is estimated to be 500 million yuan, 580 million yuan, and 690 million yuan respectively. The corresponding PE is 23X, 20X, and 17X, respectively, maintaining a “buy” rating.
Risk warning: risk of price fluctuations of major raw materials; risk of poor progress in developing new categories of markets; risk of channel decline falling short of expectations.