Revenue/net profit to mother in '23 was -4.9% /+660 million yuan, maintaining that “buying” the company achieved revenue/net profit of $59.2/270 million yuan (after adjustment), of which 23Q4 revenue/net profit to mother was 13.8/-0.7 billion yuan, or -10.4%/-0.6 billion yuan, mainly due to an increase in Q4 credit impairment losses, but the company's gross margin continued to improve year on year. We expect the company's net profit to be 4.2/48/540 million yuan in 24-26 years. Compared with the company Wind's consistent expected average of 12xPE in 24 years, considering the continuous optimization of the company's channel structure and significant improvements in profitability and cash flow, the company was given 12xPE for 24 years, with a target price of 12.12 yuan to maintain “purchase”.

Gross margin improved year-on-year, and the share of distribution channels continued to increase in 23, with the company's revenue of 45.2/5.5/690 million yuan, +1.6%/-23.2%/-6.8%; gross profit margin of 30.7%/19.8%/31.0%, +6.9/+4.6/+1.4pct, with cost reduction driving the company's overall gross margin +5.9pct to 29.5% year on year, of which 23Q4 was 29.3%, +4.7pct year on year. By channel, the company's distribution/strategic engineering channel revenue in '23 was 38.3/2.09 billion yuan, +6.2%/-20.2% year-on-year. The share of distribution channels increased by 6.8 pct to 64.6% year on year, and the sales structure was further optimized.

The sales expense ratio declined markedly year on year. The channel transformation helped improve the net operating cash flow rate of 19.2%, compared with -1.3 pct year over year. Among them, the sales/management/R&D/finance expenses ratio was 6.4%/7.6%/3.6%/1.5%, respectively, and -1.9/+0.5/-0.2/+0.3 pct. The significant decrease in sales expenses was mainly due to the company shrinking the real estate business scale and reducing sales and operating expenses. The net profit margin of the company in '23 was 4.5%, +10.6pct year-on-year, mainly due to a recovery in gross margin and a reduction in credit impairment losses throughout the year. The company's net operating cash flow in '23 was $930,000, +55.1% year over year, and Q4 was 460 million yuan, +234.8% year over year. It was mainly due to channel structure optimization. At the same time, the company strengthened cost control and optimized payment and settlement methods, and the amount of maturing supply chain factoring and maturing commercial draft acceptance amounts decreased.

The market share of ceramic tiles increased further, and the risk of bad debt accrual was gradually released. According to the China Building Sanitary Ceramics Association, the country's ceramic tile production in '23 was 6.73 billion square meters, -8.0% year-on-year, while the company's ceramic tile production and sales volume was 150 million square meters, +0.5%/+3.6% year-on-year, respectively. The company's market share further increased during the period when the industry was under pressure. In recent years, the company has continuously optimized its channel structure, formed an omni-channel sales model focusing on distribution, engineering, hardcover, design, new retail, etc., while continuing to implement measures to reduce costs, reduce costs, and increase efficiency, and continued to restore profitability. By the end of 23, the size of the company's accounts receivable decreased by 14.8% compared to the beginning of the year. With channel transformation and the gradual release of bad debt accrual risks, the company is expected to go to battle lightly, and market competitiveness is expected to further increase.

Risk warning: The cost of raw materials and energy has risen sharply, increasing competition in the industry has led to a decline in gross margin, and the risk of depreciation of accounts receivable.