Event: Rongtai Health announced its 2023 annual report and pre-increase results for the first quarter of 2024. In 2023, revenue of 1.86 billion yuan, YoY -7.5%, realized net profit of 200 million yuan, YoY +23.4%; after conversion, Q4 achieved revenue of 550 million yuan and YoY +25.8% in a single quarter, achieving net profit of 50 million yuan and YoY +32.2%. The company expects to achieve net profit of 59,252 million yuan to 64.585 million yuan in 2024Q1, YoY +58.0% ~ +72.2%. We believe that demand for overseas massage chairs is picking up, Rongtai's export business continues to recover, and profitability is gradually improving.
Q4 revenue growth in a single quarter was positive: Looking at the subregions: 1) Overseas demand continued to recover, Rongtai adjusted its product strategy flexibly, and overseas orders continued to recover in the second half of the year. We infer that Q4's export revenue increased significantly year-on-year. 2) Domestic offline consumption activities have gradually resumed. Rongtai has deepened channel reform, increased investment in terminal channel expansion, new product launch promotion, and store image upgrade, and offline sales have been growing steadily. Considering the intensification of online competition and the restructuring of Moda, we speculate that 2023Q4 and 2024Q1 Rongtai's online revenue will still be under pressure. According to data from Jiuqian, 2023Q4/2024Q1 Rongtai Dual Brand (Rongtai+MoMoMad) had online sales YoY -23.0%/-21.2%. Looking ahead, the company continues to adjust its product strategy, launch products in different price ranges to meet the different needs of various markets, and at the same time formulates an active sales policy, and revenue is expected to pick up in the future.
Q4 profitability increased year-on-year: Q4 Rongtai's net interest rate to mother was 9.2%, +0.4pct year over year. The company's profitability continued to improve year over year, mainly because: 1) The company strengthened cost reduction and efficiency, adopted measures such as accurate allocation of sales expenses and reduction of unnecessary expenses. The cost ratio was -1.6 pct year over year during the Q4 period, of which the sales expense ratio was -4.8 pct year on year. 2) Benefiting from factors such as exchange rates and falling raw material prices, Q4 gross margin was +1.4pct year over year. Considering that Rongtai expects a sharp year-on-year increase in net profit due to 2024Q1, we speculate that the company's profitability will continue to improve. In the future, as consumption recovery drives up revenue scale, the company's profitability is expected to continue to increase.
Q4's operating cash flow improved markedly year-on-year: Rongtai's Q4 net operating cash flow was +200 million yuan, YoY +101.4%. The company's operating cash flow situation improved markedly, mainly due to: 1) the recovery in sales scale, and the YoY of cash received from sales of goods and services in Q4 was +9.9%. 2) Prices of raw materials have declined, and the company's payment cycle for purchasing raw materials and products has been extended. Q4 YoY of cash for purchasing products and receiving labor payments is -17.2%.
The dividend rate level increased year-on-year: Rongtai plans to distribute a cash dividend of 10.00 yuan (tax included) to all shareholders for every 10 shares, and at the same time transfer 3 shares for every 10 shares to all shareholders with capital reserve.
The total proposed cash dividend was 130 million yuan, with a dividend rate of 66.4%, which is a significant increase from the 2022 dividend rate (41.3% in 2022). The dividend rate is 5.0% based on the closing price of April 15, 2024, which is a high dividend ratio.
Investment advice: Rongtai is actively improving domestic sales channels. As the consumption climate improves, the company's domestic sales revenue is expected to return to a rapid growth trajectory; at the same time, the company continues to expand overseas markets, and export sales revenue is expected to continue to rise. We expect the company's EPS from 2024 to 2026 to be 1.91/2.25/2.61 yuan respectively, maintaining a buy-A investment rating, giving the company 15 times PE in 2024, and a target price of 28.62 yuan for 6 months.
Risk warning: the price of raw materials has risen sharply, the RMB has appreciated sharply, and overseas trade policy risks.