Event: On March 29, 2024, Changhong Meiling released its 2023 annual report. In 2023, the company achieved revenue of 24.248 billion yuan (+19.95%), net profit attributable to mother of 741 million yuan (+203.04%), and net profit of non-return to mother of 749 million yuan (+629.43%).

The profit side of 2023Q4 is growing rapidly, and export sales are growing rapidly. 1) On a quarterly basis, 2023Q4 achieved operating income of 5,080 billion yuan (+4.96%) and net profit to mother of 242 million yuan (+194.22%). There was a steady increase in revenue and impressive growth rates on the performance side. 2) By business, air conditioners, refrigerators (cabinets), washing machines, small household appliances and kitchen appliances achieved revenue of 115.66 billion yuan (+18.24%), 9.088 billion yuan (+18.57%), 1,329 billion yuan (+76.37%), and 1,849 billion yuan (+15.16%) respectively in 2023. Among them, the continuous increase in the washing machine business may benefit from differentiated domestic competition and product structure optimization, compounding breakthroughs in major overseas markets. 3) By region, the company's overall domestic sales revenue in 2023 was 16.663 billion yuan (+10.80%), or benefited from the company's domestic product structure optimization and enhanced market development capacity; export revenue of 7.585 billion yuan (+46.52%) achieved rapid growth, or was due to the gradual recovery of the overseas consumer market and continuous increase in sales to the company's strategic customers.

The net interest rate of 2023Q4 increased significantly, and the cost ratio was controlled reasonably during the period. 1) Gross profit margin: 2023Q4 gross margin was 15.82%, -1.28pct year over year, a slight decrease; there was an improvement of +1.18pct month-on-month.

2) Net interest rate: 2023Q4 net interest rate was 5.00%, +3.09pct year-on-year, with a significant increase. 3) Expense ratio: 2023Q4 sales/management/R&D/finance expense ratios were 6.63/1.87/3.59/ -0.22%, respectively, and -0.53/+0.18/+0.00/ -0.72pct, respectively. Among them, the increase in the company's financial revenue was mainly due to the year-on-year increase in interest income and exchange income.

The product side continues to promote new upgrades, and the marketing side collaborates at home and abroad to help build brands. 1) Product side:

In 2023, the company continued to strengthen the “Meiling Fresh”, “Meiling Thin”, “Meiling Narrow”, and “Meiling Inlay” product business cards. At the same time, it also released a variety of new products, such as the “Worry-Free Pro” refrigerator equipped with a dual evaporator system and AI cloud moisturizing technology, the “Hand Wash” series washing machine, and the world's first -180°C compressor cooled ultra-low temperature biological storage device. 2) Marketing side: a) Domestic: Actively promote marketing transformation from sales management for product lines to omni-channel and user management services, from single-category marketing to full-category marketing, and achieve product leadership and efficiency improvement through firm benchmarking; b) Overseas: Continue to build marketing capabilities around “cold washing collaboration, internal and external collaboration and channel expansion”, and collaborate with teams and channel resources based on the refrigerator cabinet industry to accelerate the washing machine business. At the same time, collaboration between internal and external R&D, manufacturing, and resources can achieve two-way empowerment of domestic and overseas businesses.

Investment advice: On the industry side, the Red Sea incident and the catalytic exchange policy for home appliances may support the short- to medium- to long-term growth of the white electronics industry. On the company side, domestic product structures and market channels are expected to continue to be expanded and optimized. Overseas markets may accelerate development and continue to consolidate key regional markets such as the Middle East, Latin America, and Africa. The company's revenue performance is expected to continue to grow with the help of internal and external collaboration and industrial collaboration. We expect the company's net profit to be 9.10/10.71/1,212 million yuan in 2024-2026, the corresponding EPS is 0.88/1.04/1.18 yuan, and the PE corresponding to the current stock price is 10.52/8.94/7.90 times. First coverage, giving a “buy” rating.

Risk warning: Increased industry competition, risk of exchange rate fluctuations, risk of price fluctuations of commodities, trade frictions and geopolitical impacts.