Incident: The company released its 2023 annual report, achieving full year operating income of 7.802 billion yuan, a year-on-year increase of 2.00%; net profit to mother of 324 million yuan, an increase of 393.89%; after deducting non-net profit of 289 million yuan, an increase of 650.75% over the previous year. Comments on this are as follows:
Due to falling raw material prices and dilution of costs, the annual performance was high. 1) Profitability improved quarterly, and Q4 net profit to mother increased by 194%. In Q4 2023, the company's revenue was 2,253 billion yuan, up 0.57% year on year; net profit to mother was 180 million yuan, up 193.62% year on year; after deducting non-net profit, it was 153 million yuan, up 269.71% year on year. Q1-Q4's gross margins were 30.13%, 31.90%, 32.16%, and 33.95% respectively, showing a steady upward trend. Among them, Q4 gross margin increased 2.77 pcts year over year and 1.79 pct month on month. 2) Revenue and sales volume of major products increased slightly. In 2023, door and window hardware systems/household products/other construction hardware achieved revenue of 35.87/13.88/1,126 billion yuan respectively, an increase of 0.90/1.42/ 20.29% year-on-year respectively. Construction hardware production and sales volume was 9694.98/95.5894 million sets respectively, up 9.11/ 3.00% year-on-year respectively. 3) Due to the decline in raw material prices, gross margin has increased. In 2023, the company's gross margin/net margin was 32.26/ 4.49% respectively, up 2.06/3.35pct year-on-year respectively. Among them, the gross margins of door and window hardware systems/household products/other construction hardware products were 40.43/29.83/18.98% respectively, with year-on-year changes of +3.95/-1.83/+1.80pct. 4) The fee rate has decreased slightly. In 2023, the company's net operating cash flow was 499 million yuan, a year-on-year decrease of 46.61%, mainly due to an increase in the company's purchases of products in the current period. The company's cost rate for the period was 25.15%, down 0.98 pct year on year. Among them, the sales/management (including R&D) /financial expense ratios were 16.08/8.81/0.26%, with year-on-year changes of -0.61/+0.02/-0.39pct, respectively. In 2023, the company's accrued asset and credit impairment losses totaled 136 million yuan, a year-on-year decrease of 19.53%.
Channel+ products continue to gain strength and strengthen the company's moat. On the channel side, as of 2023, the company had more than 1,000 domestic and foreign sales network points and a sales team of more than 6,000 people. The company focuses on overseas market development. In recent years, it has set up 15 overseas warehouses to replicate Chinese warehousing sales overseas to respond quickly to customer supply needs. The products have been sold to more than 100 countries and regions, and subsidiaries have been set up in Hong Kong, India, Vietnam, Indonesia, Malaysia, Mexico, etc. In 2023, the company's revenue from Hong Kong, Macao, Taiwan and overseas was 770 million yuan, up 0.12% year on year, accounting for 9.88% of revenue. On the product side, the company is committed to enriching the product structure and expanding new products and new markets. Some new products are growing rapidly through cultivation, such as household bathroom, shower rooms, ventilation systems, etc.
Shares are repurchased for equity incentives or employee stock ownership plans, demonstrating confidence in future development. On March 1, the company announced the share repurchase plan. The total capital to be used for repurchase is not less than 100 million yuan (inclusive) and no more than 200 million yuan (inclusive), and the repurchase price is not more than 56.11 yuan/share (inclusive). The estimated number of shares to be repurchased is 1.7822 million shares to 3.5644 million shares, accounting for about 0.55% to 1.11% of the company's total share capital. This share repurchase will be used for equity incentives or employee stock ownership plans, which will help to further establish and improve the company's long-term incentive mechanism, fully mobilize the enthusiasm of the core management team and business backbone, and attract and retain outstanding talents.
Investment advice: High annual performance, buyback of shares boosts confidence in development, and maintains an increase in holdings rating. Net profit from 2024 to 2026 is expected to reach 446, 663, and 713 million yuan, respectively, up 38%, 49%, and 8% year-on-year, respectively, and corresponding valuations 28, 19, and 17 times. The company's hardware business category is perfect, and the new business is developing well; the company has strong R&D strength and obvious brand advantages; channel sinking is beginning to bear fruit, information management improves efficiency, and future development can be expected.
Risk warning: risk of raw material price fluctuations; risk of downstream real estate regulation; risk of sluggish downstream demand; risk of increased industry competition, etc.