Description of the event
The company released an annual report: revenue of about 7.8 billion yuan in 2023, up 2% year on year, attributable net profit of about 320 million yuan, up 394% year on year, and 651% year on year after deducting non-net profit. 2023Q4's revenue was about 2.25 billion yuan, up 1% year on year, and attributable net profit was about 180 million yuan, up 194% year on year. After deducting non-net profit, it increased 270% year on year.
Incident comments
Revenue growth comes from new products, a positive feedback from upfront investment. In 2023, the company's revenue increased 2% year on year. Among them, revenue from door and window hardware and door control hardware increased by 1% and 6%, respectively, and revenue from supporting components and fence components in industrial and construction business sites with poor cash flow decreased by 9% and 17%, respectively. With household products, other construction hardware products, and door and window accessories as new product lines, the share of new product revenue increased to 40% in 2023 (less than 20% of revenue in 2019), an increase of 6% over the previous year. In addition, the company will develop new markets in a targeted manner, especially domestic third- and fourth-tier markets and county market development work.
Currently, the company has more than 1,000 domestic and foreign sales network points and a sales team of more than 6000 people. The channel is expected to continue to sink in the future.
Profitability and cash flow both improved. The company's gross margin in 2023 was about 32.3%, up 2.1 percentage points year on year. The decline in raw materials and the scale effect of some products were the main reasons. The average price of aluminum alloy, zinc alloy, and stainless steel, the core raw materials of hardware products, fell 8%, 14% year on year in 2023, respectively. By category, gross margin of door and window hardware and other construction hardware products increased 4.0 and 1.8 percentage points year over year, and gross margin of household products decreased 1.8 percentage points year over year, mainly due to cost losses caused by the relocation of the Haybes factory. The company's expenses rate for the period was about 25.1%, down 1.0 percentage point year on year, mainly due to the sales expense ratio falling 0.6 percentage points year on year. At the end of the period, the company had about 6089 sales staff, down 11% year on year. The per capita output of sales staff was 1.28 million yuan, an increase of 15% year on year. There is still a gap in the per capita output of sales staff in 2023 compared to 2021 (about 1.35 million yuan). It is expected that the business goal will continue to increase per capita output this year.
Focus on operational improvements in the fourth quarter. Revenue for the fourth quarter increased 1% year over year, continuing the trend of the previous three quarters. The gross margins for the past four quarters were 30.1%, 31.9%, 32.2%, and 34.0%, respectively, showing a gradual improvement trend. The sales rate for the fourth quarter was about 15%, which was about the same as the previous year. Previously, the sales rate reached a low level of 11% in the single quarter. The non-net interest rate deducted for the fourth quarter was about 7%, up 4.9 percentage points year on year and 0.8 percentage points month on month.
Face up to the problems you face. The company chose a direct sales model in the small b home building materials industry, and the business naturally fluctuated. First, revenue is more sensitive than the external business environment. Downstream construction project capital is very common. Once the downstream capital environment deteriorates, the company must balance revenue growth with the size of accounts receivable (such as shrinking real estate business in 2022 and shrinking construction business in 2023); second, expenses are more sensitive to revenue, and the company's historical sales rate fluctuates between 12-22%.
I saw strong persistence. Before the real estate industry crisis, the company took the lead in shrinking accounts receivable (the revenue ratio for 2021-2023 was 0.82, 1.00, and 1.08, respectively). In order to maintain revenue growth but lack C-side business, the company passively invested in categories and sank in channels, and finally the cost investment entered the payback period. The core driving force for the company's revenue growth in 2023 came from counties and new products, but net interest rates have been rising sequentially for two consecutive quarters, indicating that channel construction is efficient.
The company's net profit for 24-25 is estimated to be 588 to 740 million yuan, corresponding to 19 or 15 times the valuation, with a significant bottom value.
Risk warning
1. The real estate industry has declined sharply;
2. Prices of raw materials fluctuate greatly.