The 2023 results fell short of our expectations, mainly due to declining domestic sales revenue and changes in profit structure. The company announced 2023 results: 2023 revenue of 9.613 billion yuan, -5.54% year on year; net profit to mother of 389 million yuan, -26.5% year on year; net profit after deducting net income of 353 million yuan, or -35.5% year on year.
Corresponding to 4Q23 revenue of 2,832 billion yuan, -12.9% year on year; net profit to mother was 0.26 million yuan, +2.5% year on year; net profit after deduction was 0.14 billion yuan, -83.9% year on year. The company's performance fell short of our expectations, mainly due to the decline in domestic sales revenue and pressure on profits due to low industry sentiment, increased competition, and corporate channel adjustments. The 2023 dividend rate is 29.4%, lower than the previous level. Gross margin and net profit margin in 2023 were -3.2pp/ -1.2ppt to 25.9%/4.0%, respectively, mainly due to an increase in the share of export sales.
The small household appliance industry is facing changes in the “human market”: 1) In China's small household appliance industry, the kitchen market is maturing, and the cleaning and personal care categories are growing. The company is expanding from comfort zones to unfamiliar categories.
2) The consumer structure has changed, the proportion of young people living alone has increased, and product design needs to be adjusted accordingly.
3) Small appliances are mainly sold online. They have the characteristics of variable traffic and different rules on various platforms, and sales costs are high in the current competitive environment, which has a negative impact on the marketing ROI of the small home appliance industry.
Joyang's business adjustments: 1) Affected by the above adjustments, Joyang's performance in 2021-2023 experienced three consecutive years of adjustments. 4Q23 The company's domestic sales channels removed inventory, and domestic sales revenue for the whole year was -16.7% year-on-year. Market demand for the company's dominant categories, such as wall breakers and air fryers, is weak. In the context of cost-effective consumption, the company's mid-range and high-end product lines, the growth in demand is also inferior to the previous market background period of consumption upgrades. 2) The company's promotion of cleaning appliances and small personal care appliances still needs to be improved.
The company's Shark China team has accumulated a certain amount of experience in the field of clean appliances. After the acquisition of Beetle Smart, the company will continue to strengthen its capacity in the clean appliances sector. We are also looking forward to future results.
The globalization trend of China's home appliance industry is clear: 1) Joyang is participating in the globalization trend of China's home appliance industry by supplying related companies. In 2023, the company's export revenue was 2,239 billion yuan, +68.8% year on year; the annual export revenue accounted for +10ppt to 23% year over year, which is an important increase in performance. 2) The market also expects Joyang's own brands to better participate in the global trend.
Development trends
The company needs to respond more to the new consumption situation under the changes in the “human and warehouse” of small household appliances. Significant results have been achieved on the export side, but we believe it is still necessary to consider going overseas with our own brand to improve profitability.
Profit forecasting and valuation
As domestic sales have yet to see a clear inflection point, we lowered our 2024 profit forecast by 12% to 550 million yuan and introduced a 2025 profit forecast of 585 million yuan. The current stock price corresponds to 14.6 times/13.7 times the 2024/2025 price-earnings ratio. As an established leader in small household appliances, the company has the ability to adjust in the midst of industry fluctuations and maintain a superior industry rating. Due to pressure on profits and declining dividend rates, we lowered our target price by 20% to 14.09 yuan, which corresponds to 19.7 times the price-earnings ratio of 2024 and 18.5 times the price-earnings ratio of 2025, and there is 35% room for growth.
risks
The risk of insufficient domestic sales demand, the risk of fluctuating export orders, and the risk of low dividend rates.