Description of the event

In 2023, the company achieved revenue/net profit/net profit deducted from non-net profit of 76.48/4.25/ 392 million yuan, +2%/-28%/-28%; of these, 2023Q4 corresponded to 23.68/1.37/130 million yuan, respectively, +5%/-19%/-14%; 2024Q1 achieved revenue/net profit/net profit/net profit after deduction of non-net profit of 11.35/ -0.90/ -106 million yuan, +2% /loss/loss year-on-year.

Incident comments

In 2023, the company's revenue also increased by 2%. Among them, home improvement and e-commerce were the core growth drivers; 2024Q1 exports may be the core of the increase. Although the average price of smart toilets is under pressure, there are significant quantitative dividends, driving continued revenue growth.

2023 Categories: Sanitary Ceramics/Faucet Hardware/Bathroom Furniture +7%/+2%/-5% YoY. The smart toilet business showed excellent performance, with a year-round increase of 12%, with revenue up 1.9 pcts to 20.4%, with sales volume/average price up +30%/-14%, respectively. The high sales increase was mainly due to growth in e-commerce and home improvement channels. The average price declined due to factors such as the consumption environment, but the average price of smart toilets was still significantly higher than that of sanitary ceramics as a whole (1431/415 yuan in 2023, respectively). The increase in the share had a positive effect on the overall average price.

Channel division in 2023: Distribution store retail/ home improvement/ engineering/ e-commerce channel revenue was -3%/+9%/+1%/+7%, respectively. Among them, home improvement and e-commerce channels showed resilient performance. Specifically: 1) Distribution and retail: continue to promote dealers to speed up coverage of empty areas and optimize the layout of existing stores. At the end of 2023, the company had a total of 17,567 terminal stores, a net increase of 4,189 over the previous year (mainly home improvement stores and sinking channel outlets). 2) Home improvement:

Strategic cooperation with leading national assembly companies and local dealers landing+ empowering local dealers to cooperate with small and medium-sized equipment companies to move forward together, opening up room for growth. 3) E-commerce: Present diversified products under the “1+N” multi-store matrix strategy, and accelerate the layout of emerging platforms such as Douyin and Kuaishou while deepening traditional platforms such as Tmall and JD. 4) Engineering:

Focus on core real estate customers and non-residential customers, and focus on promoting customer structure optimization under the condition of controlling overall risk.

2024Q1 revenue also increased by 2%. It is estimated that exports are the main driver of growth, and domestic sales may have declined as a whole. It is estimated that this is related to the impact of the April launch plan on the pace of channel pickup; it is estimated that the growth rate of Q1 smart toilets continues to be superior to the overall growth rate.

Average prices declined due to a weak consumer environment, which also affected profitability. 1) 2023: Gross margin decreased by 4.5 pcts, with gross margin of sanitary ceramics/faucet hardware/bathroom furniture falling by 5.5/3.9/5.4 pcts, respectively, and smart toilets reduced by 6.1 pcts, all due to increased product promotion efforts in the current consumption environment; the annual sales expenses rate also decreased by 1.6 pcts, mainly due to the company changing part of the subsidy fees for dealers to price discounts starting in 2023H2, resulting in a reduction in confirmed dealer subsidies; the return and deduction of non-net interest rates also decreased by 2.3/2.1 pcts. 2) 2024Q1: Gross margin decreased by 6.0 pcts, mainly due to weak profits on some export orders, and the company has reduced costs in a targeted manner to improve efficiency, and the mother/net interest rate decreased by 8.2/7.9 pcts.

I am optimistic about the company's main line of intelligence+integrated growth, and the results of refined operation during the year. Smart toilets are still a major dividend product, and the company has obvious advantages; at the same time, increasing sales space for hardware and other products around the core products of sanitary ceramics is still considerable.

This year, the company will strengthen its competitive advantage in the direction of increasing customer acquisition (improving store layout), improving customer orders (upgrading the store format), omni-channel layout (diversification of e-commerce platforms+export volume), and grasping stock demand. The reduction in product-side cost-effective product prices goes hand in hand with high-end products dominating the high ground; furthermore, this year, it emphasizes a number of measures such as value chain collaboration to reduce costs and improve efficiency and strengthen management resilience.

The estimated net profit for 2024/2025 is 47/540 million yuan, corresponding to the current PE 17/15x.

Risk warning

1. Real estate sales and completion fell short of expectations; 2. Competition for smart products continued to intensify; 3. The company's channel expansion fell short of expectations.