Performance summary: The company released its 2023 annual report. In 2023, the company achieved revenue of 3.1 billion yuan, +16.5% year on year; realized net profit of 210 million yuan, +625.2% year over year; realized deducted non-net profit of 250 million yuan, +78.6% year on year. Looking at a single quarter, 2023Q4 achieved revenue of 720 million yuan, +30% year on year; achieved net profit of 0.2 billion yuan, turning a year-on-year loss into a profit; and realized net profit of 40 million yuan after deduction, turning a year-on-year loss into a profit. Revenue gradually improved, and profits grew rapidly throughout the year. The company announced a profit distribution plan for 2023, with a cash dividend of 10 yuan for every 10 A-shares. Cash dividends account for 171.6% of the net profit realized to mother in that year, and the dividend ratio is high.

Product structure optimization led to an improvement in gross margin and an overall restoration of profitability. In 2023, the company's overall gross margin was 36.7%, +5.1pp year on year, and the 2023Q4 gross margin was 42%, +9.1pp year on year. Benefiting from factors such as product structure optimization and declining shipping costs, the gross margin improved year on year. By product, the gross margin of the company's smart electric beds/mattress/accessories and others was 35.7% (+5.1pp)/46.6% (+8.6pp)/43.3% (+16.7pp); by region, the company achieved gross profit margin of 54.5% (+11.5pp)/35.8% (+5.5pp) domestic/overseas. In terms of cost ratio, the company's total expense ratio was 26.5%, +1.2pp compared to the previous year, and the cost control was good.

Among them, the sales expense rate/ management expense rate/ financial expense ratio/ R&D expense ratio were 12.9%/9.8%/-1%/4.8%, respectively, -1.9pp/+0.8pp/ +3.5pp/ -1.2pp. Domestic sales market cost efficiency improved, and the sales expense ratio declined year on year; the financial expense ratio increased year on year, mainly due to a decrease in exchange earnings. Taken together, the company's net interest rate was 6.6%, +5.7pp; the net interest rate for single Q4 was 2.7%, turning a loss into a profit year over year, and profitability improved year on year.

Multiple categories are working together, and the production capacity layout continues to expand. By product, in 2023, the company achieved revenue of 2.52 billion yuan (+13.5%), with steady growth; achieved sales volume of 1.08,000 units (-8.7%), with an average price of 2,298 yuan/set (+24.4%). As overseas inflationary pressure weakened, the average price of electric beds rebounded; mattresses achieved revenue of 230 million yuan (+23.4%), which is growing rapidly; accessories and others achieved revenue of 240 million yuan (+79.7%).

In terms of production capacity, the company's production capacity continues to expand while strengthening the overseas production capacity layout. In 2023, the R&D center and supporting plant project (phase II) of the company's smart electric bed project with an annual output of 4 million units were successfully completed. After completion, it will form a data center service with an annual output of 1 million sets of sensors and 24,000 electric beds, enhancing the company's data storage and analysis capabilities and helping to market the company's smart bed products. In January 2024, the company officially started construction of its Binh Phu plant in Vietnam. After delivery, it is expected that the entire process can produce 80,000 sets of smart beds per month, and the production capacity layout will continue to be optimized.

Old customers have stable cooperation and superior product competitiveness. By region, the company's export/domestic sales revenue in 2023 was 2.78 billion yuan (+15.5%)/220 million yuan (+55.1%), respectively. In terms of export sales, the company has stable cooperative relationships with major customers. With the gradual elimination of overseas customer channel inventory, the company's export sales revenue has resumed steady growth.

At the beginning of 2024, the company extended the manufacturing and supply agreement for electric bed products until March 31, 2027, and renewed the five-year electric bed product manufacturing and supply agreement with Shuda Simmons. Furthermore, the company actively expanded new customers and established cooperation with North American bedding channel providers. The new customers are expected to gradually contribute more and continue to be competitive in the North American market. In terms of domestic sales, the company's brand launch has shown results. Revenue has grown rapidly, and its brand power continues to improve. In 2023, the smart electric bed segment, which the company focuses on, gradually expanded domestically. In April, the company's domestic sales brand “Schuford” opened its first offline direct store in Beijing, opening a total of 109 stores throughout the year. It is anticipated that the domestic market will maintain a steady pace of opening stores in the future and enhance brand influence.

Profit forecasting and investment advice. EPS is expected to be 0.77 yuan, 0.90 yuan, and 1.05 yuan respectively in 2024-2026, and the corresponding PE is 15 times, 13 times, and 11 times, respectively. Considering the company's stable customer relationships and outstanding product competitiveness, it maintains a “buy” rating.

Risk warning: the risk of large fluctuations in material prices, the risk of large exchange rate fluctuations, the risk of increased international trade friction, the risk that the commissioning of new capacity projects will fall short of expectations, and the risk of increased competition in the industry.