The company released its 2023 annual report: In 2023, it achieved revenue of 2.84 billion yuan (+11.5% YoY), net profit of 219 million yuan (YoY +3.6%), net profit of 200 million yuan (YoY +3.9%); Single Q4 realized revenue of 638 million yuan (+11.3% YoY), net profit of 43 million yuan (YoY -24.8%), net profit of 37 million yuan (YoY -23.1%). The growth rate of Q4 revenue and profit is under pressure. Revenue is expected to be delayed and confirmed due to the pace of delivery. Profits are mainly affected by factors such as increased investment in independent brand promotion expenses compounded by exchange losses. 24Q1 is expected to recover at an accelerated pace in the same period last year.
Smart toilet brands are growing rapidly, export OEM efforts are being made, and water fittings continue to improve. In 2023, the company's smart toilet and cover/traditional water fittings/ same-layer drainage system product revenue was RMB 1,266.20/210 million yuan respectively (+25.9%/-13.7%/+17.7% YoY).
Smart toilet: In '23, the company vigorously promoted the domestic market development of its own brands, with new retail channels represented by online Douyin, spilling traffic to traditional e-commerce channels such as Tmall & JD, and stabilizing profits; actively expanding offline distribution outlets and enhancing the store's image, such as expanding the proportion of specialty stores, increasing the market share in the doorstep, etc., and entering new home appliance channels. Channel expansion is expected to continue to grow strongly throughout the year. The smart toilet foundry business is expected to remain steady, and the 2024 plan is to vigorously explore overseas markets to drive the optimization of the OEM customer structure and increase profitability.
Traditional water supplies: The decline in 2023H2 revenue narrowed to 8.2% (2023H1 fell by 18.8%). The overseas recovery trend is expected to continue in 23Q4 & 24Q1, and a steady recovery is expected in 24 years.
Same-layer drainage: The penetration rate of the industry has increased, and the competitive pattern is excellent. With the accumulation of products and technology, the company's share is expected to increase steadily.
The brand business drives up gross margins, maintains high investment in marketing, and has a steady profit level throughout the year. The company's gross profit margin in 2023 was 29.53% (+4.7pct year on year). Among them, the gross margin of smart toilets and cover/traditional waterfits/same layer drainage system products was 30.1%/25.8%/34.9% (+6.5pct/+1.4pct/+1.8pct), respectively. The share of smart toilet independent brands increased, driving a steady increase in profitability. In 2023, the company's sales/management/R&D/finance expense ratios were 10.9%/4.6%/4.2%/-1.0%, respectively (+4.6%/-0.2%/-0.1%/+1.3% year-on-year). The sharp increase in sales expenses was mainly due to the company's increased investment in brand building. Service expenses increased by 90 million yuan year-on-year during the year. It is expected that the company will maintain brand investment intensity in 2024; the increase in financial expenses is mainly due to high exchange earnings during the same period in '22. In 2023, the company's net profit margin was 10.0% (-0.8pct year on year), and the single Q4 was 6.7% (-3.2pct year on year).
Cash flow is impressive, and operating efficiency is gradually improving. Net operating cash flow in 2023 was $436 million (+073 million yuan), up 20.1% year over year. In terms of operating capacity, as of the end of 2023, the number of accounts receivable turnover days was 61 days (-19 days year over year), the number of accounts payable turnover days was 62 days (+2 days year over year), and the number of inventory turnover days was 79 days (+6 days year over year).
Profit forecast and investment rating: Smart bathroom penetration rate continues to increase, the company's offline channel expansion exceeds expectations, and domestic brands & overseas OEM resonance is improving. We expect the company's net profit for 2024-2026 to be 270 million yuan, 340 million yuan, and 410 million yuan respectively, corresponding to PE of 17.0X, 13.7X, and 11.4X, maintaining a “buy” rating.
Risk warning: Smart product promotion falls short of expectations, export OEM expansion falls short of expectations, water goods recovery falls short of expectations, and real estate decline exceeds expectations.