Description of the event
The company released its 2023 annual report. In 2023, it achieved revenue of 3.91 billion yuan, +7.7% year-on-year, and net profit to mother of 550 million yuan, +14.2% year-on-year. A cash dividend of 4.50 yuan is distributed for every 10 shares, with a dividend ratio of 94% (74% in 2022). The company expects revenue in 2024 to +15% year-on-year.
Incident comments
Gross profit margins have increased, and foreign exchange has dragged down performance. The Q4 revenue growth rate exceeding expectations is related to the high number of winter repair orders, etc. Net profit to mother was 0.26 million yuan, compared to a loss of 0.3 billion yuan in the same period last year. Gross margin for 2023 is +1.9 pc (t H2 +2.6 pct year over year), which is expected to be related to factors such as lean on-site management, product structure optimization, and declining raw materials since Q2. The increase in travel expenses due to market expansion led to a sales expense ratio of +0.5 pct to 9.1% year over year, management expenses remained flat at 10.4% year on year, and net exchange rate fluctuations reduced net exchange income by 40 million yuan year on year, dragging down performance.
Zipper & button revenue has accelerated, and zipper gross margin has improved significantly. By category, H2 zipper/button revenue was +17%/+14% year over year to 11.3/870 million yuan, respectively. Orders continued to improve, and both showed a significant acceleration compared to H1 (H1 zipper/button revenue was -2.8%/+3.2%, respectively). The gross margin of H2 zippers/buttons increased by 4.0/1.8 pct to 39.6%/42.5%, respectively. Factors such as cost reduction, category scale effects, and customer structure optimization are expected to drive a significant increase in zipper gross margin.
The domestic market is better, and the capacity utilization rate has been restored. By region, H2 overseas/domestic revenue was +4%/+21% year-on-year to $61/1.47 billion, respectively. Better order performance from domestic brands and differences in base figures led to a better growth rate in the domestic market. In 2023, the overseas capacity utilization rate increased sharply by 11pct to 51% year-on-year under a steep decline in production capacity, and the domestic market also saw a year-on-year capacity utilization rate of +3 pct to 69.5% due to improved orders.
Looking ahead, in the short term, the company's orders are still improving month by month. The commissioning of the Vietnamese factory is also driving the company's orders to accelerate. Revenue performance is expected to be impressive in 2024, and further order volume is expected after overseas brands inspect their factories in 2025. There is still room for improvement in gross profit due to the scale effect, and reasonable fee control is also expected to drive better performance. In the medium to long term, the company continues to improve the level of intelligence and automation, and the trend of expanding the share of new customers and increasing the share of old customers remains unchanged in the context of overseas expansion. Therefore, it is estimated that in 2024-2026, the company will achieve net profit attributable to mother of 660 million yuan, 7.9 million yuan, and 950 million yuan, respectively, +18%, +21%, and +20%, respectively. The PE corresponding to the current price is 21, 17, and 15X, respectively, maintaining a “buy” rating.
Risk warning
1. Overseas brands fall short of expectations when leaving the inventory;
2. The recovery in domestic clothing consumption falls short of expectations;
3. The expansion of the company's overseas production capacity fell short of expectations.