2023 results fell slightly short of our expectations

The company announced results: 1) In 2023, it achieved revenue of 665 million yuan, -17% year over year; net profit to mother of 71.36 million yuan, +52% year over year; net profit of 64.03 million yuan after deduction, +59% year over year. It is proposed to pay a cash dividend of $0.20 per share, with a cash dividend ratio of 91%. 2) Corresponding to 4Q23 revenue of 193 million yuan, -28% YoY; net profit to mother of 19 million yuan, -6% YoY. 3) The company's performance was slightly lower than the previous performance report and slightly lower than our expectations, mainly due to the increase in expense accruals during the period.

The share of cost-effective consumption has increased, and the company's own brand revenue has declined: 1) The small household appliance market in China is facing changes in the human market, and the market is changing rapidly. Beiding is positioned as high-end, mainly small kitchen appliances. 2) Insufficient purchasing power has led to an increase in the share of cost-effective consumption in the market, and Beiding's revenue as a high-end brand has also been affected.

In 2022/2023, Beiding's Chinese brand revenue was 587/496 million yuan, +2%/-16%, respectively. 3) The company aims to improve revenue by expanding categories. For example, revenue from major 2H23 electrical products all fell by more than 20% year on year, and steaming cookers also ended the previous high growth; however, the company's supporting sales strategy led 2H23 tableware, drinkware and related revenue to buck the trend and +10% year-on-year.

Resilient growth in the foundry business: 1) In the company's revenue structure in 2023, Beiding China and Beiding Overseas contributed 74.5% and 4.9% respectively, and OEM contributed 20.6%. 2) With the end of inventory removal by OEM customers, 4Q23 foundry business revenue was +35% year-on-year, achieving restorative growth. Annual labor income was +9% year-on-year to 137 million yuan. 3) Starting in 1Q23, the overseas independent brand business model was adjusted, and the decline in factory prices was directly reflected in the decline in revenue. Overseas independent brand revenue in 2023 -65% YoY.

The company pays more attention to profit margins and dividends: 1) In 2023, the company's gross margin was +2.0ppt to 50.7% year-on-year, mainly benefiting from factors such as cost reduction on the manufacturing side and product structure optimization. 2) The company adjusted the overseas operating model of its own brand to low cost rate distribution, and continued internal cost reduction and efficiency to optimize cost investment efficiency. The sales expense ratio in 2023 was -3.5ppt year over year; the management expense ratio was -0.1ppt; the company attached importance to R&D, and the annual R&D cost rate was +1.7ppt year-on-year. 3) Under the combined influence, the net interest rate returned to mother in 2023 was restored to 10.7%, +4.9ppt compared to the previous year. The company's dividend rate in 2023 was 91%, focusing on shareholder returns.

Development trends

Although the company's high-end positioning makes it difficult to achieve good growth in the current consumer market, it focuses on maintaining the profit margin and cash flow of the business, and on rewarding shareholders with a high dividend rate. Since its listing, the company has maintained a high dividend rate. The dividend rate in 2022 and 2023 all exceeded 90%, which supports the stock price.

Profit forecasting and valuation

As high-end consumption remains weak since 1Q24, we cut our 2024/2025 net profit by 10%/13% to 85.37 million yuan/98.17 million yuan. The current share price corresponds to 29x/25x 2024/2025 price-earnings ratio. Maintaining an outperforming industry rating, but due to the reduction in profit forecasts, we lowered our target price by 11% to 9.15 yuan, corresponding to the 35x/30x 2024/2025 price-earnings ratio, with 21% upside.

risks

Risk of demand fluctuations; risk of increased market competition; risk of fluctuations in raw material prices.