Incidents:

The company announced the 2023 annual results report on March 29, achieving operating income of 2.98 billion yuan, -6.20% YoY, and net profit to mother of 350 million yuan, +35.29% YoY. On April 2, the results announcement for the first quarter of 2024 was announced, achieving net profit of 103 million yuan to 123 million yuan, +135.7% to 181.4% over the same period last year.

Comment:

The trend of high performance growth continues. It is estimated that in 2023Q4, the company's revenue was 790 million yuan, +14% year over year, and net profit to mother was 49.28 million yuan, +13% year over year. The company's net profit returned to mother increased high throughout the year. The main reasons include the divestment of “Songlin?” in the third quarter of 2023 Home” Business; The beauty and health business is developing rapidly, with revenue growth of 79%; the profitability of the kitchen and bathroom health business has increased. 2024Q1 continued the trend of high profit growth.

The profit margin has clearly recovered. According to the performance report, it is estimated that the net profit margin of return to mother sales in 2023 was 11.7%, an increase of 3.6 pct over the previous year. The company adheres to category orientation, embraces old customers, and actively explores new customers. The kitchen and health categories have achieved steady growth, further optimized the product structure, continued to promote lean operation, and exceeded the company's net profit target.

Invest in a factory in Vietnam. The company announced in October 2023 that it plans to build a smart health hardware production base project in Vietnam. It is the company's first overseas production base. The total investment amount of the project is estimated to be no more than 50 million US dollars. The aim is to expand production capacity, support orders from overseas brand customers, and enhance overseas competitiveness.

It is expected to benefit from improved demand brought about by US interest rate cuts. According to Wall Street news, the Federal Reserve may cut interest rates three times in 2024. The 2023H1 company accounts for 66% of its export revenue. Its products are mainly exported to the US, Europe, etc., which is expected to benefit from improved demand in overseas real estate chains brought about by US interest rate cuts.

Restrictive stock incentive programs unleash growth momentum. The company implemented restricted stock incentives in January 2024, and granted 6.975,000 restricted shares to 116 people for the first time. The performance conditions for lifting sales restrictions are: based on net profit in 2022, the net profit growth rate from 2024 to 2026 will not be less than 80%/120%/160%. Excluding base adjustments, it is estimated that net profit of $513/6.27/741 million yuan will be required from 2024 to 2026.

Maintain an “Overweight” rating. According to the downgraded profit forecast based on the performance forecast, operating income from 2023 to 2025 is estimated to be 298/38.5/4.60 billion yuan, and net profit to mother is 3.5/47/550 million yuan (previous value was 40/4.9/580 million yuan), corresponding to PE 22/16/14 times.

Risk warning: Overseas demand falls short of expectations, risk of exchange rate fluctuations, company performance falls short of expectations