Incident: The company achieved operating income of 1.82 billion yuan in 2023, net profit of -5.28% year on year, net profit of 0.25 million yuan, -74.58% year on year; of these, 2023Q4 achieved operating income of 468 million yuan, -32.14% year on year, and net profit to mother of -15 million yuan, or -177.12% year on year. A cash dividend of 1 yuan (tax included) is distributed for every 10 shares, and the dividend rate is 54.7%.
The complete machine business is under pressure, and we are actively expanding the motor business related to the main business. By product, 23A hose fittings/machine revenue was +13.7%/-19%, and the machine business revenue declined year-on-year; among them, 23H2 revenue was -30.2%/-20.4% yoy, and revenue declined significantly in the second half of the year. Looking at the volume and price breakdown, sales of complete vacuum cleaners were +18.3% year over year. The decline in average price due to intense competition put pressure on the growth rate of the OEM business. The company actively expands overseas customers and strives to enrich the customer structure, gradually shifting from a single major customer with a relatively high order share to a multi-customer model to prepare for the subsequent expansion of diversified clean appliance production. Furthermore, in order to further improve the domestic and foreign vacuum cleaner OEM business supply chain system and improve the component manufacturing rate, the company and Suzhou Yongjie Motor Co., Ltd. set up a shareholding subsidiary Vietnam Yongjie Company in Vietnam through shareholding. In the same year, the company also established a wholly-owned subsidiary, Suzhou Hongshun Company, in Suzhou, which is mainly engaged in R&D, production and sales of vacuum cleaner motors. As of the end of 23, the vacuum cleaner motor business of Suzhou Hongshun Company was still in the development and internal testing and improvement stage. As of the end of March 2024, there were no product sales or profits. In addition, Jinhua Hongkai Company, a wholly-owned subsidiary of the company, achieved operating income of 134,200 yuan within 23 years, mainly through OEM pump motor business for customers, but was not yet profitable. From January to January 2024, it achieved operating income of 1.8956 million yuan and profit of 2371,000 yuan.
The gross margin of traditional main businesses has been restored. In 2023, the company's gross margin was 12.58%, -1.73 pct year on year, and the net margin was 1.49%, -4.36pct year on year; of these, 2023Q4 gross margin was 12.55%, -0.95pct year on year, and the net margin was -3.75%, -7.4pct year on year. By category, the gross margin of 23A hose fittings/machine was +0.1/-6.3pct year-on-year, of which 23H2 gross margin was +13.9/-9.4pct year-on-year. The gross margin of 23A hoses/fittings was +3.4/-1.9pct compared to the same period, and the gross margin repair of hoses was even more significant.
The company's 2023 sales, management, R&D, and financial expense rates were 0.92%, 5.75%, 3.55%, and -0.49%, respectively, +0.11 pct, +0.11 pct; of these, the 23Q4 quarterly sales, management, R&D, and financial expenses rates were 0.62%, 4.36%, 5.65%, and 1.67%, respectively, +0.15, +1.22, +1.98 pct. The management expense ratio increased year-on-year, mainly due to the increase in managers' wages, office expenses, etc. The financial expense ratio increased year-on-year, mainly due to a decrease in exchange earnings.
On the balance sheet side, the company's monetary capital+transactional financial assets in 2023 were 472 million yuan, -13.03% year over year, inventory was 267 million yuan, -10.46% year over year. The total amount of notes receivable and accounts receivable was 555 million yuan, -14.73% year over year.
On the turnover side, the number of turnaround days for the company's inventory, accounts receivable, and accounts payable at the end of 2023 was 63.96, 111.15, and 126.52 days, respectively, +4.62, +13.97, and +15.39 days compared to the previous year. On the cash flow side, the company's net cash flow from operating activities in 2023 was -0.9 billion yuan, -126.35%, of which cash inflow from sales of goods and provision of services was $1,413 million, -19.32% year over year; of these, net cash flow from 2023Q4 operating activities was 61 million yuan, -74.38% year over year, of which cash flow from sales of goods and provision of labor services was 351 million yuan, -46.56% year over year.
Investment advice: Due to the fierce competitive environment, the company's OEM business is under pressure. The company currently lays out the upstream industry around its core business, while actively improving the customer structure. In the future, as the self-control rate increases, the company's profit level is expected to improve. According to the company's annual report, we lowered the revenue and profit of the entire machine. We expect net profit of 0.7/0.9/120 million yuan (value of 1.79 billion yuan 24-25 years ago) for 24-26, corresponding to dynamic PE 43.3x/32.1x/25.1x, maintaining the “increase in holdings” rating.
Risk warning: raw material price fluctuation risk; market competition risk; alternative product risk; machine order falling short of expectations; exchange rate risk; OEM penetration rate falling short of expectations, etc.