1Q24 results are basically in line with our expectations

The company announced 1Q24 results: revenue +1% year-on-year to 1,366 billion yuan, net profit to mother +10.18 million yuan to -45.87 million yuan, deducted non-net profit +1.59 million yuan to -58.37 million yuan, which is basically in line with market expectations.

1) Demand is under pressure, revenue increased slightly: Under pressure from real estate demand (1Q real estate completed area -21% YoY), the company actively changed channels and developed counties and overseas markets, driving 1Q24's revenue to increase slightly by 1% year over year; among them, we estimate that door and window hardware and accessories fell by more than 15% year on year due to the decline in real estate, household/other construction hardware increased by more than 30% year on year; 2) Raw materials weakened year on year, gross margin repair: 1Q24 company's main aluminum alloy, stainless steel, zinc alloy +2% YoY ratio/-17%/-8 %, causing the company's 1Q24 gross margin to +0.3pt to 30.4% year on year; 3) The cost ratio for the period decreased slightly: due to personnel control, the period expense ratio was -0.1ppt to 32.2% year over year, of which sales/management/R&D expenses were -5%/+8%/+11% year-on-year to 2.73/0.97/0.65 billion yuan, respectively; 4) Cash flow marginally weakened year-on-year: 1Q24 revenue ratio -18ppt to 100% year-on-year, driving operating efficiency Net cash flow was -251 million yuan to -610 million yuan, of which accounts receivable were -147 million yuan to 3.58 billion yuan (of which accounts receivable turnover days -25 to 230 days year-on-year), accounts payable -577 million yuan month-on-month to 2,329 million yuan (of which accounts payable turnover days -55 days to 180 days year-on-year), and inventory was -92 million yuan to 1,245 million yuan month-on-month. 5) Stable debt ratio: The 1Q balance ratio was -4.5ppt to 41.2% month-on-month, of which interest-bearing debt was +36 million yuan to 376 million yuan month-on-month, and cash in hand+financial management was 781 million yuan, which is in a net cash position.

Development trends

New scenarios such as counties and towns are gradually taking shape, and profits are expected to be released after revenue is accelerated. Looking ahead to 2024, I think real estate completion is expected to gradually weaken as sales weaken, dragging down the company's hardware product revenue, and the revenue growth rate is still under pressure. Looking at the company itself, we believe that the company is actively increasing investment in counties and overseas sectors, and that sales personnel are gradually getting rid of the influence of the original real estate and focusing on the county, non-residential, and overseas markets. At the same time, with the gradual improvement of the company's product integration, revenue may gradually accelerate, contributing most of the revenue growth to the company. At that time, the company is expected to usher in an inflection point where sales efficiency is improved, cost rates are rapidly diluted, and profit margins are rising.

Profit forecasting and valuation

We have kept our profit forecast unchanged for the time being. The current stock price corresponds to 24/25e 19.5/15.0x P/E. We maintain our outperforming industry rating, but the real estate industry is still in a downturn. We lowered our target price by 17% to 38 yuan, corresponding to 24/25e 23.8x/18.3x P/E, implying 22% upward space.

risks

Demand for completion exceeds expectations, labor efficiency releases fall short of expectations, and development of new regions falls short of expectations