Key elements of the report:
The company released its 2023 annual report. In 2023, the company achieved revenue of 1,688 billion yuan (+22.16% YoY) and net profit to mother of 327 million yuan (+49.71% YoY). A cash dividend of $3.00 (tax included) is distributed for every 10 shares.
Investment highlights:
Performance growth exceeded expectations, with net profit attributable to mother +49.7% year-on-year. In 2023, the company achieved revenue of 1,688 billion yuan (+22.16%), net profit to mother of 327 million yuan (YoY +49.71%), and performance growth exceeded expectations, net profit of 323 million yuan (+46.18% YoY). Mainly due to the company increasing offline channel expansion and diversified operation of online channels, it achieved good sales growth while optimizing production processes to promote cost reduction and efficiency. Among them, Q4 achieved revenue +53.05% YoY and net profit to mother +92.11% YoY.
Profitability has increased dramatically, and sales expense ratios have increased. In 2023, the company's gross margin was +4.98 pct year on year to 51.35%, and the net margin was +3.55 pcts year on year to 19.36%. Profitability increased significantly. It is estimated that: 1) the company optimized the product structure and increased the share of smart home products; 2) optimizing production processes to achieve cost reduction and efficiency. In terms of the cost ratio, the sales expense ratio was +1.66 pcts to 20.33% year over year, mainly due to increased promotion of offline channels and e-commerce platforms in 2023, and increased investment in advertising, etc.; management/R&D/finance cost rates were 5.17%/3.15%/-0.48%, respectively, and -0.38/ -0.02/+0.05 pcts year-on-year, respectively.
The product structure continues to be optimized, and online and offline dual drives are developed. By product: The company's main products continued to upgrade from traditional drying products to smart drying products. In 2023, the company's smart home products achieved revenue of 1,433 billion yuan (+26.39% year over year), accounting for 85.70% of the main business revenue; gross margin increased 4.84 pcts to 53.10%; revenue from drying rack products fell to 216 million yuan (+1.58% year over year), accounting for 12.89% of the main business, and the gross margin increased 6.62 pcts to 44.04%. Channel division: The company actively broadens offline channels to achieve online and offline dual-drive development. In 2023, offline channels achieved a rapid increase in sales revenue, +37.51% year-on-year, and the share increased to 39.82%.
Online channels achieved sales revenue of 1.06 billion yuan, +13.71% year-on-year.
Profit forecast and investment advice: The company has been deeply involved in the smart home field represented by intelligent fabric care for more than 20 years. The products and services cover the fields of intelligent fabric care, intelligent nursing, and intelligent light sensing for the whole house. As the smart penetration rate of the whole house in China increases in the future, the smart home products developed by the company will win more sales and continuously increase its market share. We adjusted the profit forecast based on the latest operating data. We expect the company's EPS for 2024-2026 to be 0.98/1.18/1.40 yuan/share (EPS of 0.83/0.97 yuan/share before adjustment for 2024-2025), and PE corresponding to the closing price on April 23, 2024 will be 15/12/10 times, respectively, maintaining a “buy” rating.
Risk factors: risk of raw material price fluctuations, risk of increased industry competition, risk of brand category expansion falling short of expectations, risk of channel expansion falling short of expectations.