Revenue increased slightly year over year, and profit recovered markedly, in line with previous performance forecasts. In 2023, the company achieved revenue of 7.80 billion yuan, +2.0% of the year on year after adjustment, net profit of 324 million yuan, 393.9% after adjustment, net profit after adjustment of 289 million yuan, +650.8% year-on-year, EPS was 1.01 yuan/share, which is basically in line with previous performance forecasts, and plans to distribute 10 yuan (tax included); of these, Q4 revenue for a single quarter was 2.25 billion yuan, +0.6% year-on-year, net profit to mother of 180 million yuan, +193.8% year-on-year, year-on-year net profit +153 million yuan 269.7%

The county market is expanding steadily, and other construction hardware is growing significantly. The company continues to pay attention to improving efficiency per capita and leveraging the advantages of sales channels to expand new markets in a targeted manner. According to estimates, per capita sales revenue in 2023 was 12.8 billion yuan, +15.1% over the same period last year. By the end of the year, there were 6089 sales staff, -11.4% compared to the same period last year. By product, revenue from door and window hardware/door and window fittings/door control/household/other construction hardware in 2023 was +0.9%/-3.6%/+6.4%/+20.3%. Some of the new products benefited from cultivation and gradual release. Other construction hardware grew significantly, with point support/stainless steel fence revenue -8.9%/-17.0%, continuing to be affected by repayment factors for engineering projects; by region, domestic/overseas revenue was +2.2%/+0.1%, respectively, and the domestic market continued to expand long-tail market demand opportunities, and the county market continued to see results. Continuing to actively expand overseas business, online e-commerce platforms targeting Vietnam, India and other markets have also been launched during the reporting period.

Gross margin improved quarterly, expenses were thinned slightly, and overall cash flow remained healthy. The comprehensive gross profit margin for 2023 was 32.3%, Tongbi1+21.pp, of which the Q4 gross profit margin was 34%, +2.8pp/month-on-month. By product, all other major categories increased to varying degrees, mainly due to the year-on-year decline in raw material prices, and a slight dilution of the cost rate due to revenue growth. The cost ratio for the 2023 period was 25.2%, -1.0pp. Among them, the sales/finance expense ratio was -0.6 pp/0.4 pp year on year, and the management/R&D expenses ratio remained flat. Net operating cash flow of $500 million was achieved in 2023, 46.7% year-on-year, with a payment/payout ratio of 1.08/0.98, and 1.00/0.74 for the same period last year. Repayments remained healthy, and payment owners repaid a large amount of upfront accounts payable and notes.

Risk warning: Real estate recovery falls short of expectations; raw material prices have risen sharply; new categories and market expansion fall short of expectations

Investment advice: Integrated suppliers of construction components, continue to be optimistic about long-term development potential, maintain “buying” in the face of declining industry sentiment. The company continues to pay attention to improving input, output and manpower efficiency, and sticks to cash flow. As channels continue to be targeted, counties and overseas markets are expected to contribute more incremental growth. Coupled with continuous maturing of superimposed categories and improved internal management efficiency, there is room for further improvement in profits, and continues to be optimistic about the company's long-term development potential. Considering that the current recovery in market demand is still slow, the 24-25 profit forecast is lowered. EPS for 24-26 is expected to be 1.56/2.04/2.46 yuan/share (the value was 1.79/2.73 yuan/share 24-25 years ago), and the corresponding PE is 23.1/17.7/14.7x. Taking into account long-term development potential, the “buy” rating is maintained.