Event: The company publishes its 2023 annual report. The company's revenue in 2023 was US$1,375 million, or -30.89% YoY; net profit - US$37 million, -126.7% YoY. Among them, 23H2 earned $636 million, or -35.56% year-on-year, and realized net profit of $86 million.
Revenue side: Affected by factors such as inventory removal, revenue declined significantly: the company's revenue was US$1,375 million, -30.87% year over year, mainly due to: 1) being affected by major customer inventory removal, with the largest customer Lowe's being -52.2% YoY; 2) Weak consumer demand for OPE during the Federal Reserve's interest rate hike cycle; 3) the 2022 base figure was high.
By business: Electric tools revenue was $550 million, -27.3% year over year; OPE revenue was $81 million, or -33.7% year over year. By market: North America's revenue of US$940 million (accounting for 68.4%), or -37.7% YoY; European revenue of US$280 million (accounting for 20.5%), -11.0% YoY. Sub-model: The company's OBM business revenue was 1.01 billion US dollars, -27.2%. In the context of the market downturn, the company's terminal POS sales continued to grow, and the market share of the independent brand EGO increased; the ODM business was -39.9% compared to the same period last year, and the impact of inventory removal was even more obvious.
Profit side: The decline in gross profit is mainly due to inventory impairment, and the increase in expenses is due to increased investment. The company's gross sales profit in '23 was $387 million, -36% year over year, and gross margin declined from 30.4% to 28.1%, mainly due to inventory impairment preparations. SG&A expenses accounted for 30% of revenue. Sales/management/R&D expenses increased by 7.0 pct/2.53pct/1.84pct, respectively. The main revenue declined sharply. At the same time, the company maintained its strategic strength, insisted on expanding channel resources, and increasing investment in commercial product R&D and human capital.
Financial Status: Overall health of liabilities and liquidity. In 2023, the company's leverage ratio was 34%, a significant decrease from history, and debt repayment pressure was reduced; the number of inventory/receivables/accounts payable turnover days was 209/77/90 days, respectively. Among them, the number of inventory turnover days increased 33% year over year, mainly affected by a decrease in customer orders, while the absolute value of inventory fell by 70 million US dollars from the beginning of the year.
EGO released a new T6 series product to further optimize the price in line with market trends. The price of the new 2024 POWER+42” T6 is $3,999. Compared with previous generations, the price was reduced by more than 25%. The main functional parameters focused on reducing the area of a single mowing. The cruise control function was further optimized. The adjustment is expected to be more suitable for use on small-area lawns, and the price advantage is outstanding. Once launched, it was very popular in the market.
Investment advice: With the loss of the channels bottoming out, the company is expected to recover its performance in 2024. At the same time, the company is actively expanding John Deere's new channels, and new order drivers can be expected after the 2023Q3 cooperation begins. We expect the company to achieve revenue of US$14.1/16.2/US$1.81 billion in 2024-2026, and net profit of US$0.76/ 1.31/150 million, corresponding to PE 19/11/10 times, and maintain an “gain” rating.
Risk warning: Inventory losses fall short of expectations; risk of exchange rate fluctuations; poor overseas consumption; increased industry competition.