Core views:

The company released its 2024 quarterly report, achieving revenue of 1,366 million yuan, +0.85% year-on-year, net profit of -46 million yuan (last year's Q1 was -56 million yuan), and net profit of -58 million yuan (last year's Q1 was -60 million yuan).

Revenue continued to grow slightly in the first quarter, and new scenarios and new categories continued to contribute to growth. Dragged down by real estate, the industry's sentiment continued to be poor, and Q1 revenue continued to grow slightly in 2023. By category, due to continued poor real estate demand in the first quarter, it is expected that real estate-related door and window hardware and accessories will decline significantly year on year, and household and other construction hardware products related to new categories and new scenarios will continue to grow rapidly year on year.

The gross margin increased slightly year over year, and the reduction in staff led to a decrease in sales expenses. The Q1 gross profit margin was 30.41%, +0.27pct; the Q1 period expense ratio was 32.22%, year-on-year -0.14pct. Among them, sales/management/R&D/finance expense ratios were -1.18/+0.44/+0.16pct, respectively. The year-on-year decline in sales expenses was mainly due to a decrease in personnel and a year-on-year increase in per capita income generation.

Operating cash flow declined year over year, and the cash to revenue ratio was still greater than 1. Q1 Net operating cash flow was -61 billion yuan, -250 million yuan, mainly due to sales receipts of 230 million yuan lower than year on year and 80 million yuan higher in cash payments to employees; the revenue ratio was 101%, the year-on-year -18pct, the payout ratio was 131%, and the year-on-year ratio was -6pct.

The year-on-year decline in the revenue ratio is mainly due to certain changes in the collection structure, a year-on-year increase in factoring payments in the first quarter, and a high base for the same period last year. The company's accounts receivable and payables declined at the same time. As of the end of Q1, the company's accounts receivable and notes were 3.58 billion yuan, -11.8% year-on-year, and accounts payable and notes were 2.33 billion yuan, -24.7% year-on-year.

Profit forecasting and investment advice. We expect that the company's net profit for 2024-2026 will be $53/71/90 billion, respectively. According to the latest closing market value, PE is 19/14/11 times, respectively. Referring to comparable company valuations and company performance growth expectations, we maintain the judgment that the company has a reasonable value of 49.35 yuan/share in 2024, corresponding to 30 times the 2024 PE valuation, and maintain a “buy” rating.

Risk warning. Downstream demand has declined, raw material prices have risen, and expectations for new categories to expand into new markets are low, etc.