Event: Annual Report for the year 23: Revenue of 11.67 billion yuan in 2023, +4.0% year on year, net profit to mother of 1.26 billion yuan, +18.5% year on year; of these, Q4 revenue was 3.47 billion yuan, +5.4% year over year, and net profit to mother was 310 million yuan, +18.4% year over year. The company plans to pay a cash dividend of 10 yuan for every 10 shares. 24Q1 performance forecast:
It is estimated that 2024Q1 will achieve revenue of 19.9 to 2.17 billion yuan, +10-20% year on year; net profit to mother of 160 to 190 million yuan, +50-80% year on year; deducted from non-return of 130 to 160 million yuan, +50 to 80% year on year.
The performance is excellent, and the dividend ratio enhances the investment value. In 2023, with the exception of Q1, the average revenue growth rate of companies was steady, and profit growth was high. The 24Q1 revenue side benefited from a low base and business development, and achieved growth under industry pressure; the high profit growth exceeded our expectations, demonstrating the company's excellent cost control. The company raised its dividend ratio to 75% in '23, and the dividend rate was around 6% based on the latest closing price, which highlighted the investment value. The company's multi-brand and full-category system is clearly sorted out. The expansion of categories, the expansion of the Milana brand, and the development of complete packaging channels drive the company's growth, and there is still plenty of room for future development. CR9 in the home furnishing industry is only about 10%. We are optimistic that the company will continue to increase its share with the above three grippers and maintain steady performance under future industry pressure.
Looking at the annual report from a brand perspective, the main brand has developed steadily, and Milana continues to grow at a high rate. By brand:
1) Sophia: Revenue of 10.55 billion yuan, +11.0% year-on-year. The overall strategy continues to advance, and collaborative category sales have become the main driving force for brand growth. The average factory-side customer unit price for the whole year was 1,619 yuan, +6.3% over the same period last year.
There is still plenty of room for growth in many categories such as cabinets, doors and windows, and bathrooms, and I am optimistic that customer unit prices will continue to rise. The number of stores decreased by 102 to 2,727 in 2023. We speculate that the company promoted the merger of dealers and small stores to open larger stores to facilitate the display of all categories, while optimizing some inefficient stores.
2) Milana: Revenue of 470 million yuan, +47.2% year-on-year, a sharp increase. In 2023, the net number of stores opened was 176 to 514, and the market coverage continued to increase; at the same time, category expansion continued to advance, and the average customer unit price also increased 6.6% year-on-year to 13,934 yuan. Milana is a popular brand built by the company based on its own strong supply chain system. It is in line with cost-effective consumption trends, has broad development space, and is optimistic that it will continue to grow rapidly.
3) Simi: Cut with Sophia's main brand in '23, and some stores were merged into Sophia. As a result, the number of stores was drastically reduced, but losses were reversed on the profit side, and the effect of reducing costs and increasing efficiency was obvious after wholly-owned ownership. Simi will create a high-end brand image and promote independent investment; the category aspect will expand from kitchen cabinets to wardrobes to all categories. Most stores have already sampled wardrobes, and the brand can be expected to return to growth this year.
4) Huahe: Revenue of 160 million yuan, a slight decrease of 3.6%. Based on the steady development of the new Chinese market segment, the brand gradually expanded from wooden doors to wall cabinet products.
Looking at the annual report from a channel perspective, retail channels are growing steadily, overall growth is high, and overseas business is gradually being developed. Looking at revenue by channel, 1) Retail channel: Total revenue from distribution+direct management was 9.94 billion yuan, +4.6% over the same period last year. The category linkage rate increased. The Milana brand, the complete channel was the main growth point. Among them, the entire assembly channel is still in a period of rapid expansion. Revenue increased 67.5% year over year, and the empty market is still vast. 2) Bulk channels: Revenue of 1.45 billion yuan, -4.9% YoY. The company strengthens risk control and focuses on cooperation with high-quality real estate companies. In addition, the company is actively exploring large-scale overseas business. It already has 27 overseas distributors, covering more than 20 countries. It is expected that the bulk business will stabilize as a whole.
Raw material prices have fallen, costs have been reduced and efficiency has increased, and profitability has increased under large depreciation. The company's gross profit margin in 2023 was 36.2%, a year-on-year increase of +3.2pct, mainly benefiting from falling raw material prices and optimization of production efficiency. Sales and management expenses rates were -0.3 and -0.2 pct, respectively, and the cost pressure dropped after the consumption scenario was liberalized.
In the long run, the increase in customer unit prices will help reduce the cost rate. In 2023, the company's various depreciations totaled RMB 310 million, of which individual receivables were separately accrued at RMB 150 million (mainly Evergrande) and depreciation of non-current assets amounted to RMB 65 million (Evergrande Construction Arrived at Housing). Considering that Evergrande's accounts receivable accrual ratio has reached 95%, related impairment will decline in the future. Under asset depreciation, the company's net interest rate to mother still reached 10.8% in 2023, +1.3 pct compared to the previous year, and is expected to continue to rise this year. Considering that the company continues to reduce costs and increase efficiency, profitability is expected to remain at a good level in the future.
Investment advice: As an industry leader, Sophia has advantages in channel category layout and organizational structure.
Category expansion, cost-effective brand strength, and integrated channel development are expected to help the company continue to increase its market share and maintain steady performance under industry pressure. The company has abundant cash flow and has actively increased its dividend rate in 23 years. The dividend rate has reached around 6%, which has strong investment value. The company's net profit for 2024-2026 is estimated to be RMB 14.1, 15.6, and 1.74 billion yuan, respectively, with growth rates of 11.4%, 10.7%, and 11.7%, respectively. Currently, PE corresponding to the stock price is 11.0, 9.9, and 8.9 times, respectively, maintaining the “recommended” rating.
Risk warning: Real estate sales declined more than expected, consumption was sluggish, and raw material prices fluctuated greatly.