Incident: The company announced its 2023 annual report. In 2023, the company achieved revenue of 11.666 billion yuan, up 3.95% year on year, and achieved net profit of 1,261 billion yuan, up 18.51% year on year; in the fourth quarter, the company achieved revenue of 3.465 billion yuan, an increase of 5.37% year on year, and realized net profit to mother of 309 million yuan, an increase of 18.40% year on year.
The main brand is growing steadily, and the overall channel continues to gain strength. By brand, in 2023, the company's Sophia brand/Milana brand achieved revenue of 105.52 billion yuan, up 11%/47% year on year respectively. Among them, the revenue of the Sophia/Milana brand increased 15%/22% year on year respectively in the fourth quarter. The whole family model led the customer unit price of Sophia's main brand to increase 6% year on year. Revenue achieved steady growth, and the cost-effective growth rate of the brand Milana was impressive. By channel, in 2023, the company's distribution/direct operation/bulk channel achieved revenue of 96.27/3.15/1,451 billion yuan, respectively, +4%/+14%/-5% year-on-year. The retail channel achieved good growth, driven by the integrated business. In 2024, the company's assembly business revenue reached 1,907 billion yuan, up 68% year on year, with a year-on-year increase of 38% in the fourth quarter; the company's bulk channel is still in the customer structure optimization and adjustment stage, and revenue declined slightly in the short term.
Profitability improved in 2023, and the risk of impairment was fully released. In 2023, the company achieved a gross profit margin of 36.15%, an increase of about 3.2 pct over the previous year. The main reason was that the company continued to reduce costs and increase efficiency, the utilization rate of sheets and labor efficiency increased year on year, and the manufacturing cost ratio and raw material purchase price decreased year on year. The company's expense ratio for the same period was 20.25%, down 0.2 pct year on year. Among them, sales/management/R&D/finance expense ratios were -0.3/-0.2/+0.4/-0.2 pct year on year, respectively. In 2023, the company accrued a total of about 310 million yuan in assets and credit impairment losses, including 160 million yuan in accounts receivable impairment losses, 40 million yuan in inventory impairment, 0.2 billion yuan in long-term equity investment impairment and 65 million yuan in other assets. The impairment ratio of Evergrande's receivables has reached 95%. The company's net interest rate in 2023 was 10.81%, up 1.3 pct year on year, improving profitability.
Dividends have been strengthened, and employee shareholding has deepened synergy of interests. In 2023, the company paid a cash dividend of 10 yuan for every 10 shares, with a total dividend amount of 952 million yuan. The dividend payment rate reached 75%, and the dividend intensity increased year-on-year. At the same time, the company released a draft employee shareholding plan in early March, which mainly covers no more than 200 executives and other core employees, with a transfer price of 8.59 yuan/share. The corresponding assessment indicators are based on 2023 revenue, a 2024/2025 growth rate of not less than 10%/20%, or net profit to mother in 2024/2025. The 2024/2025 growth rate is not less than 10%/20%, and the revenue or net profit to mother is considered to have reached the assessment target. The current employee stock ownership plan fully demonstrates the company's confidence in growth over the next two years, and is expected to fully motivate employees.
The company's net profit for 2024-2026 is estimated at 1,465/16.01/1,788 billion yuan, respectively (previously forecast 2024-2025 was 1,469/1,646 billion yuan, respectively). According to the DCF valuation method, a target valuation of 21.08 yuan was given, maintaining a “buy” rating.
Risk warning
The risk of real estate completion and sales falling short of expectations; the risk of increased competition in the industry; and the risk of significant impairment of large business accounts receivable or notes receivable.