Incident: The company achieved operating income of 665 million yuan in 2023, net profit of -17.33% year on year, net profit of 71 million yuan, +51.92% year on year; of these, 2023Q4 achieved operating income of 193 million yuan, -28.44% year on year, and net profit to mother of 19 million yuan, or -6.22% year on year. A cash dividend of $2.00 (tax included) is distributed for every 10 shares, with a dividend ratio of 91%.

Private brand revenue is under pressure, and OEM revenue has recovered. By region, the growth rate of the company's own brands was under pressure in '23, with domestic/export sales revenue being -15.5%/-64.8%. Among them, the revenue growth rate of 23Q4 was further pressured. Domestic/export revenue was -25.5%/-81.5%, respectively. Export sales declined significantly, mainly due to adjustments in overseas business channels and operating models, which had a structural impact on Beiding's overseas business revenue. OEM/ODM business revenue in '23 was +8.9%, of which 23Q4 revenue was +35.3% year over year. Foundry revenue rebounded slightly as inventory levels recovered from major OEM customers.

Tableware and drinkware performed well. By category, revenue from electrical appliances/supplies and foodstuffs in '23 was -26.9%/-9.5% year-on-year. Among them, the revenue of relatively large steamed cookers was -9.7%, while the rest of the categories declined even more significantly; tableware and drinkware, which accounted for a relatively large share of supplies and foodstuffs, was +6.9%, while the rest of the categories declined somewhat. Looking at 23H2, revenue from electrical appliances/supplies and foodstuffs was -37%/-13%, respectively. The electrical appliances category accounted for -29% of the revenue of relatively large cookers; the supplies and foodstuffs category accounted for +10% of the year-on-year ratio for tableware and drinkware.

Profit levels have been restored, with non-electrical appliances contributing compared to OEM. In 2023, the company's gross margin was 50.75%, +2.01pct year on year, and the net margin was 10.73%, +4.89pct; of these, 2023Q4 gross margin was 54.54%, +3.4pct year on year, and the net margin was 9.85%, +2.33pct year on year. By category, the gross margin of electrical/non-electrical appliances was +1.25/+3.09pct year-on-year in '23. By region, the gross margin of the domestic/foreign business of our own brands was +2.1/+5.2 pct year on year, and the gross margin of the OEM business was +3.4 pct year over year. The gross margin contribution of non-electrical appliances and foundry businesses is more obvious.

The company's 2023 sales, management, R&D, and finance expense rates were 28.04%, 9.48%, 6.02%, and -0.94%, respectively, -3.45, -0.15, +1.71, and -0.64pct; of these, the 23Q4 quarterly sales, management, R&D, and finance expenses rates were 33.68%, 7.69%, 5.67%, and -0.03%, respectively, +2, +0.71, +2.57, and -1.57pct. The sales expense ratio declined sharply year over year in '23, mainly due to a 35% year-on-year decrease in online shopping and promotion fees. R&D expenses increased year-on-year, mainly due to the company's employee remuneration, patent and certification fees, and material costs +15%/+53%/+163%. The company's profit margins have improved.

The company's net profit after deducting non-recurring profit and loss increased by 66.67% year-on-year. The main reasons include: a) stable improvement in overall gross margin; b) adjustments to the overseas operating model of its own brands have greatly optimized the overall cost level of the business; c) the company continues to reduce costs and increase efficiency, and the efficiency of various costs and expenses has improved.

Investment suggestions: On the revenue side, the construction of emerging channels for domestic sales of private brands is progressing in an orderly manner, and the export business model is gradually changing; on the cost side, the company has improved operating efficiency, cost reduction and efficiency results are beginning to appear, and the revenue of the export sales of its own brands optimizes profit levels through changes in channels and operating models. In the future, the company will also further promote efficiency and cost reduction, and wait for consumption to recover with more efficient operation and management. We expect net profit to be 0.9/1.1/120 million yuan for 24-26, respectively, and the corresponding dynamic valuations are 26.7x/22.5x/20.3x, respectively, maintaining an “incremental” rating.

Risk warning: Private brand sales fell short of expectations; export orders fell short of expectations; rising raw material prices and rising shipping costs led to a decline in profits.