Incident Overview
The company released its 2023 annual report: In 2023, the company achieved revenue of 2.18 billion yuan, a year-on-year increase of 11.5%, net profit of 220 million yuan, a year-on-year increase of 3.6%; in a single quarter, the company achieved revenue of 640 million yuan, +11.3% year-on-year, net profit to mother of 0.4 billion yuan, a year-on-year decrease of 24.8%, after deducting net profit of 40 million yuan, a year-on-year decrease of 23.1% year-on-year. In terms of cash flow, net cash flow from the company's operating activities in 2023 was $440 million, +20.1% year-on-year, with steady cash flow performance. The company plans to distribute a cash dividend of 2.5 yuan (tax included) for every 10 shares to all shareholders.
Analytical judgment:
The smart toilet and cover business grew rapidly and contributed to an increase in revenue ratio, driving the gross margin to further increase by product. In '23, the company achieved revenue of 6.2, 12.7, 2.1, and 0.9 billion yuan, respectively, -13.7%, +25.9%, +17.7%, and +53.3%, respectively. The contributing revenue ratios were 28.4%, 58.0%, 9.6%, and 4.1%, respectively. Our analysis benefited from the continuous development of our own brands. Our analysis benefited from the continuous development of our own brands. The increase is significant. According to the “2022 China Smart Toilet Consumption Trend”, the market penetration rate of smart toilets in China is about 5%, and the potential for future improvement is still huge. However, the traditional water tank and accessories business was affected by weak overseas demand, etc., and contributed revenue declined significantly compared to '22. However, as overseas customers end inventory removal and downstream demand picks up, we expect the traditional water tank and accessories business to improve in 2024.
Independent brand expansion drives up gross margin
In terms of profitability, the company's gross profit margin and net interest rate in 2023 were 29.5%, 9.9%, and +4.7pct and -0.8pct, respectively; the company's overall gross margin increase is expected to result in product structure optimization, and the share of the company's high-margin smart toilet and cover business increased by product. By product, the gross margins of the company's smart toilet, cover, water tank and accessories business increased 6.5 pct, 1.4 pct to 30.1% and 25.8%, respectively. The slight decrease in net interest rate was due to a significant year-on-year increase in the fee rate for the period. In terms of period expenses, the company's expense ratio in 2023 was 18.7%, +5.7pct year over year. Among them, the sales/management/R&D/finance expenses rates were 10.9%/4.6%/4.2%/-1.0%, respectively, +4.6pct/-0.2pct/-0.1pct/+1.3pct, respectively; the increase in the sales expense ratio was due to an increase in brand promotion fees.
Investment advice:
We continue to be optimistic about the rapid increase in the penetration rate of smart toilets, the rapid development of the company's own brand, and the profit side continues to increase as the scale effect develops. However, considering the scale effect of our own brands, we adjusted our previous profit forecasts. The revenue for the year 24 and 25 was adjusted from RMB 27.38 and RMB 3.292 billion to RMB 27.43 and RMB 3.302 billion respectively. The estimated revenue for '26 was 3,958 billion yuan, and the 24 and 25EPS were adjusted from 0.71 and 0.87 yuan to 0.67 and 0.80 yuan respectively, and the EPS for '26 is 0.96 yuan. According to the closing price of 11.48/share on April 23, 2024, the corresponding PE is 17/14/12 times PE, respectively. Maintain a “buy” rating.
Risk warning
The risk that the volume of new businesses such as smart toilets falls short of expectations; the impact of large fluctuations in raw material prices; increased risk from industry competition; and the impact of continued shipping tension.