Revenue and net profit to mother fell 25% and 18% year-on-year in '23

Jihua Group released its 2023 annual report. In 2023, the company achieved operating income of 11.561 billion yuan, a year-on-year decrease of 25.10%, net profit of 182 million yuan, a year-on-year decrease of 17.64%, after deducting non-net profit losses of 18.2 million yuan, a year-on-year loss of 66.95%, EPS of 0.04 yuan, and plans to distribute a cash dividend of 0.03 yuan (tax included) per share. The company deducted non-net profit loss in '23, while net profit attributable to mother was positive. The main reason was that non-current profit and loss contributed a total of RMB 210 million in '23, mainly profits and losses from disposal of non-current assets and government subsidies.

The decline in the company's revenue in '23 was mainly due to the company's further focus on its main business, cancellation and shutdown of major domestic trade operations, reduced revenue from trade operations, and delays in procurement or reduction in the scale of some key customers. On a quarterly basis, 23Q1-Q4 companies' revenue in a single quarter was -32.44%, -45.22%, -26.17%, and +17.76%, respectively, while net profit attributable to mother was -77.50%, -35.09%, +1550.42%, and +56.70%, respectively.

Looking at revenue breakdown: 1) By product, the company's military goods, civilian goods, trade and other revenue accounted for 48%, 48%, and 8% respectively in '23. Revenue was +2.56%, -21.61%, and -74.15%, respectively. Revenue from military supplies achieved steady growth. 2) By region, the company's domestic and overseas revenue in '23 accounted for 88% and 9% respectively, while revenue was -26.15% and -25.41%, respectively.

Both gross margin and expense ratio increased, inventory decreased, turnover slowed, and operating cash flow turned into net inflow gross profit margin: gross margin increased 2.15 PCT to 13.99% year-on-year in '23. On a quarterly basis, gross margins for a single quarter from 23Q1 to Q4 were 14.16% (+3.29PCT), 13.54% (+4.63PCT), 14.55% (+5.21PCT), and 13.74% (-7.13PCT), respectively. By product, the company's gross margins for military supplies, civilian goods, trade and others in '23 were 13.62% (year-on-year -2.02PCT), 12.04% (+0.82PCT), and 9.38% (+6.61PCT), respectively. By region, domestic and overseas gross margins in '23 were 14.06% (+3.20PCT) and 6.89% (-10.75PCT), respectively.

Expense rate: The cost rate increased by 2.40PCT to 11.99% year-on-year during the 23-year period, with sales, management, R&D, and finance expenses being 3.15% (+0.96PCT), 5.94% (+1.06PCT), 3.27% (+0.62PCT), and -0.36% (-0.24PCT), respectively. The sales cost rate increased while the total sales expenses increased. The main reason was that the company continued to increase investment in travel expenses, bidding expenses, exhibition fees and business expenses corresponding to market development; Mainly because the decline in total management expenses was lower than revenue; the year-on-year decline in the financial expense ratio was mainly due to seeking some low-interest loans and replacing high-interest loans, contributing to the year-on-year decrease in interest expenses.

On a quarterly basis, the cost rates for the 23Q1 to Q4 period were +4.03, +5.77, +3.37, and -5.49 PCT, respectively.

Other financial indicators: 1) Inventory decreased 10.14% year on year to 4.134 billion yuan at the end of the year 23, and the number of inventory turnover days was 158 days, an increase of 47 days year on year. 2) Accounts receivable decreased by 16.60% year on year to 3,031 billion yuan at the end of 23. The number of accounts receivable turnover days was 104 days, an increase of 37 days year on year. 3) Net operating cash flow was 1,118 billion yuan in 23 years, turning into a net inflow over the previous year. The main reason was that the company strengthened the settlement of accounts receivable and contributed to the repayment of sales payments.

Continuing to focus on the main business and firmly expand the market. We expect the company to focus on its main business for 23 years, continue to consolidate its position as a core supplier of military products, and further cultivate the tooling market and increase the share of functional protective products. At the same time, the Jihua Mall was launched and the Hangzhou e-commerce center was established. In 24 years, the company will continue to cultivate the stock market, consolidate its position as a core supplier of futon equipment, focus on receiving key orders for fire systems, actively expand customer orders from key central enterprises, and actively expand new business formats such as online and overseas. Considering the terminal demand trend and order acceptance situation, we lowered the company's 24-25 profit forecast (net profit to mother decreased by 39%/32% from the previous profit forecast, respectively) and added a profit forecast for 26 years, corresponding to EPS of 0.06, 0.08, and 0.09 yuan respectively, and PE for 24 and 25 was 49 times and 37 times, respectively, maintaining the “increase in weight” rating.

Risk warning: Changes in industry policies affect the bidding and procurement needs of relevant units; weak domestic demand adversely affects production or normal order acceptance; industry competition intensifies, etc.