Incidents:

On March 29, 2024, Yunji Group issued an announcement: In 2023, the company achieved operating income of 1,053 billion yuan, an increase of 15.20% over the previous year, and realized net profit of 102 million yuan, an increase of 18.58% over the previous year.

Investment highlights:

Total conveyor revenue has maintained steady growth. In 2023, the company's conveyor equipment achieved operating revenue of 961 million yuan, an increase of 11.05% over the previous year, accounting for 91.19% of the company's overall revenue, and the core business maintained steady growth. The spare parts and other business achieved operating income of 93 million yuan, an increase of 87.67% over the previous year, accounting for 8.81% of the company's overall revenue.

New orders are growing rapidly, breakthroughs have been achieved in overseas business, and there are sufficient orders in hand. From 2021 to 2023, the company added 907/14.42/2.022 billion yuan respectively, which grew rapidly.

Meanwhile, in 2023, the company won bids for two supporting belt conveyor (or belt conveyor) equipment projects for the Simandou iron ore mine in Guinea, totaling about 1.28 billion yuan, and achieved a major breakthrough in overseas expansion.

As of January 2024, the company's on-hand orders exceeded 2 billion yuan.

The increase in material costs led to a slight decrease in gross margin. In 2023, due to a 16.74% year-on-year increase in material costs, accounting for more than 82% of costs, the gross margin of the conveyor fell 1.63 pct to 22.87% year on year; the company's overall gross margin decreased by 1 pct to 23.95% year on year. The company's sales expenses and R&D expenses increased by 61.13% and 79.39% to 0.46 and 0.35 billion yuan respectively, resulting in a year-on-year increase of 1.25 pct, 1.18 pct to 4.39% and 3.29%, respectively; at the same time, the company's credit impairment losses decreased by 47 million yuan year on year. Combined with the above factors, the company's net interest rate increased by 0.28pct to 9.67% year-on-year.

Profit forecasts and investment ratings We believe that the company's orders have maintained rapid growth, made major breakthroughs in overseas expansion, and have sufficient orders in hand, which is expected to guarantee steady growth in the next two years.

We expect that the company's net profit for 2024/2025/2026 will be 1.92/3.02/416 million yuan, respectively, and the corresponding PE will be 18/12/8 times, respectively, covered for the first time, and given a “buy” rating.

Risks indicate that the order growth rate falls short of expectations; the progress of overseas business development falls short of expectations; the risk of a decline in gross margin due to an increase in raw material prices; the risk that the order confirmation process falls short of expectations; and the risk of overseas operations.