Incident: The company released its 2024 quarterly report. In 2024, Q1 achieved revenue of 5.94 billion yuan, up 18.2% year on year; realized net profit of 160 million yuan, up 26.9% year on year; deducted non-net profit of 190 million yuan, up 79.6% year on year. Non-recurring profit and loss mainly consists of changes in the fair value of foreign exchange contracts of -454.82 million yuan and government subsidies of 11.707 million yuan.

Revenue growth increased month-on-month. We estimate that the company will maintain the 2023 trend as a whole, the export business will maintain rapid growth, and the domestic sales business will remain steady. Compared with the 2023Q4 revenue increase of 5%, the company's revenue growth rate increased sharply from month to month. We speculate that domestic air conditioning reversed the downward trend, while overseas cold washing maintained a rapid growth trend.

Gross profit margin has declined, and net profit margin has been raised with good cost ratio control. The company's gross margin decreased by 1.3pp to 13.4% year-on-year in Q1 in 2024. We estimate that gross margin declined mainly due to the rapid growth of the company's ODM-based export business and changes in revenue structure. In terms of cost ratio, the company's sales/management/finance/R&D expenses ratio in Q1 2024 was 7%/1.2%/-0.7%/2.2%, respectively, -0.9pp/-0.4pp/+0.1pp/-0.3pp; in terms of net interest rate, Q1 company's net profit margin increased 0.1 pp to 2.7% year on year in 2024. It is worth noting that due to the company's suspension of payments to the Waste Electrical and Electronic Products Disposal Fund, taxes and surcharges decreased by 32.6% year-on-year to 26.50.6 million yuan, which contributed to an increase in profitability.

Cash flow is abundant, and contract liabilities have grown. At the end of the reporting period, the company's monetary capitals+transactional financial assets totaled 8.72 billion yuan, and cash flow remained abundant. The contract debt was 470 million yuan, an increase from the end of 2023, mainly due to early payment by dealers.

Profit forecasting and investment advice. The company implemented the “one goal, three main lines” business policy in 2023, and achieved good operating results in its main business, air conditioning, refrigerators, washing machines, kitchen and bathroom. The company's 2024-2026 EPS is expected to be 0.87 yuan, 1.03 yuan, and 1.14 yuan respectively, maintaining a “buy” rating.

Risk warning: Risks such as falling short of expectations in export sales growth, falling short of expectations in consumption, and increased competition.