Incident: The company disclosed its 2023 annual report and achieved annual revenue of 4.334 billion yuan, a year-on-year increase of 3.52%; net profit to mother of 425 million yuan, a year-on-year decrease of 7.25%; and deducted non-net profit of 389 million yuan, a year-on-year decrease of 8.63%. Comments on this are as follows:
Q4 Growth continues to accelerate, and we are optimistic about overseas demand and the restoration of company orders. Q4 growth accelerated. The company achieved revenue of 1,244 billion yuan in Q4, up 47.27% year on year; net profit to mother was 135 million yuan, up 33.69% year on year; after deducting non-net profit, it was 122 million yuan, up 99.61% year on year. 1) Steady growth in products and domestic and foreign revenue. By product, the company's kitchen and bathroom products/water purification products increased by 4.3%/6% to 2,87/623 million yuan respectively; by market, the company's main business revenue in the overseas market in 2023 was 3.309 billion yuan, accounting for 76.8%, up 2.1% year on year; domestic market main business revenue was 998 million yuan, accounting for 23.2%, up 8.5% year on year. 2) Gross profit margin is rising steadily, and expenses affect net interest rates. In 2023, the company's gross margin/net margin was 25.97%/9.79%, respectively, with a year-on-year change of 1.69/ -1.15pct; in terms of expenses, the company's sales/management/ R&D/finance expense ratios were 3.53%/6.02%/5.51%/-0.39%, respectively, with a year-on-year change of 0.42/0.46/-0.60/1.73pct; the company's net cash flow from operating activities in 2023 was 610 million yuan, a year-on-year change of -25%. 3) Go deep into overseas layout and accelerate channel expansion. Overseas, the company successfully implemented the second phase of the expansion project in Thailand in 2023, actively promoted the Mexican layout, launched an American subsidiary, further deepened the overseas retail layout in the North American and European belt markets, deepened cooperation with home retailer customers such as Lowe's, The Home Depot, and MENARDS; accelerated domestic channel expansion and brand building, expanded influence, accelerated the development of age-appropriate products and accessories, reshaped smart home life with technology, and built brand potential.
Share buybacks are intended to be used as equity incentives to demonstrate confidence in future development prospects. On February 6, 2024, the company issued a buyback report and promoted the company's “improving quality, efficiency and return” plan. The proposed repurchase capital shall not exceed RMB 40 million and not less than RMB 20 million to implement the equity incentive plan. The repurchase price shall not exceed RMB 18.97 per share; the source of the repurchase capital is the company's own funds. As of February 29, 2024, the company has repurchased a total of 1.012 million shares, accounting for 0.22% of the company's total share capital, and the total amount paid is RMB 10.58 million. This repurchase shows the company's confidence in long-term development and is conducive to further establishing and improving the company's long-term incentive mechanism.
Investment advice: Revenue will increase steadily throughout the year, accumulate new momentum for domestic and foreign development, and maintain the rating of increasing holdings. The company's net profit from 2024 to 2026 is expected to reach 475, 582, and 666 million yuan, respectively, up 12%, 23%, and 15% year-on-year, respectively, corresponding to PE valuations 12, 10, and 9 times. The company deepens its international layout, helps expand overseas markets and develop new businesses; accelerates channel expansion and brand building to expand its influence in the domestic market; and actively buyback shares for equity incentives, showing confidence in long-term development.
Risk warning: macroeconomic policy changes; risk of price fluctuations of major raw materials; increased industry competition; risk of lower market demand than expected; risk of real estate regulation; risk of putting into operation of fund-raising projects; risk of changes in exchange rates and export policies.