The company disclosed its 2023 annual report & 2024 quarterly report: in 2023, it achieved revenue of 9.063 billion yuan, +1.63% year over year; net profit to mother of 689 million yuan, +54.66% year over year; net profit after deducting non-return to mother of 583 million yuan, +68.30% year over year. Among them, 23Q4 achieved revenue of 3.332 billion yuan, +9.46% year over year, net profit to mother of 232 million yuan, +314.24% year over year; net profit after deducting non-return to mother 210 million yuan, +1213.48% year over year. In 2023, the company's gross profit margin was 18.42%, +0.24pct year on year, net profit margin 7.84%, +2.66pct year on year, of which 23Q4 gross profit margin was 17.68%, year on year -0.48pct, net profit margin 7.19%, +5.25pct year on year.
In the first quarter of 2024, the company achieved revenue of 1,483 billion yuan, +33.37% year on year, net profit to mother of 89 million yuan, +18.81% year on year; net profit after deducting non-return to mother was 80 million yuan, +38.35% year over year. 24Q1's gross profit margin was 17.86%, -4.88pct year on year, net profit margin 6.02%, year-on-year -0.69pct.
Add power to township+online to optimize management radius
By business: revenue from decoration materials in 2023 was 6.856 billion yuan, accounting for 75.65%, +3.23%; custom home revenue was 2.116 billion yuan, accounting for 23.36%, or -2.77% year on year; revenue from other businesses was about 90 million yuan, accounting for 1%.
By product: 2023 decorative panels were 6.424 billion, +2.56% year over year; brand usage fee (including easy installation) was 442 million, +14%; cabinet 1.71 billion, -3% year over year; floor 376 million, -1.63% year on year; wooden doors were 121 million, -7.44% year on year.
New stores added: In 2023, there were 3,765 decoration materials stores, including 909 Easywear stores.
Town+Online is the highlight of channel development in 2023: (1) Launched a township channel operation center, 744 township stores attracted investment, and completed the construction of 627 township stores. (2) By the end of 2023, nearly 400 specialty stores have achieved high-quality new retail operations, and the online market for woodworking products has gradually matured. The company took advantage of the opportunity to expand the online model and operate e-commerce and new media platforms such as Tmall, JD, and Douyin at the corporate level to attract, dispatch, and promote dealers, while dealers launched new media operations to enhance customer acquisition capabilities. (3) The dealer system cooperated with more than 16,000 furniture factory customers (5800 and 11000+ in 2021-22). (4) The home improvement company channel has launched home improvement company expansion plans in 12 core cities. (5) Traditional retail channels. The company has launched in two directions at the same time. One is the market with an empty peripheral layout, and the other is that mature market board stores reassemble and upgrade “board customization+” stores.
Shorten the management radius and segment the management vertically. On the basis of implementing a branch operation model, the company has set up a number of professional channel operation centers, such as township channel operation centers, furniture channel operation centers, home improvement channel operation centers, and easy decoration operating companies and tooling operating companies.
More prominent is the custom home retail business: focusing on wooden products such as custom cabinets, flooring, and wooden doors, achieved revenue of 2.77% year-on-year, including Bunny's full house customization of 596 million, +15.5% year on year, engineering customization (Yufeng Hantang) of 1,147 million yuan, -10.5% year over year, and net profit loss of nearly 50 million yuan. As of the end of 2023, there were a total of 782 custom home furnishing specialty stores (773 last year). The company focuses on the East China market, accumulates the core competitiveness of retail, and continues to put risk prevention first on the engineering side.
Cost and gross margin performance: comprehensive gross profit margin of 18.42% in 2023, +0.24pct year-on-year. By industry, the gross margin of the decoration materials business was 16.52%, +0.64pct year on year; the gross margin of the custom home furnishing business was 23.77%, -0.32pct year on year. From a product perspective, the gross profit margin of decorative materials was 10.97%, +0.1pct year on year; cabinet products were 25.24%, -0.77pct year on year.
Expense performance for the period: Expense rate for the 2023 period 6.78% (8.50% in the same period last year), sales expenses ratio of 3.26%, sales expenses -9.8%, the main reason was a 15% decrease in employee remuneration, accounting for 47%; management expenses decreased by -22.51%, mainly due to a year-on-year decrease of 133.72 million yuan in employee remuneration, and a year-on-year decrease of 686.777 million yuan; financial expenses were negative, -184.52%, mainly due to fixed increases and business cash inflows, reducing short-term loans and interest at the end of the period. Short-term loans were only $60 million, compared to $365 million at the beginning of the year; long-term loans began to clear in 2022. The balance ratio fell to 47.56%, -5.29pct year on year; R&D expenses ratio was 0.77%, relatively stable. Net operating cash flow for the year was $1,910 million, +104.6% year-on-year, and net operating cash flow increased by $1,036 billion in 23Q4.
Increase the dividend ratio. Real estate chains are scarce and stable dividend varieties. The company plans to distribute a cash dividend of 5.5 yuan for every 10 shares. Based on this, it is estimated that the cash dividend ratio is about 66% and the dividend ratio is about 5.1% (calculated based on the closing price of April 25, 2024).
The focus of the first quarterly report includes: 24Q1 revenue growth rate of 33.37%, mainly due to the year-over-year increase in the Class A model this year (higher revenue, corresponding brand fees for Class B). Management expenses were -25.22% year over year, mainly due to reduced equity incentive expenses; financial expenses decreased by 9.5473 million yuan year over year, a decrease of 323.35%, mainly due to increased interest income and reduced interest on loan repayment; and credit impairment losses of 22 million yuan were mainly accrued from accounts receivable and other receivables. The net operating cash flow for a single quarter was 881 million yuan, compared to the previous year - 802 million yuan, mainly due to payment of goods purchased during the due period.
Investment suggestions: We are optimistic about the company ① to develop township+online to develop channel layout; ② board+whole house customization to actively expand the industrial chain; ③ cost reduction and efficiency, high-quality development under capital management; ④ increase the dividend ratio. The company's net profit for 2024-2026 is estimated to be RMB 8.00, 9.20 and RMB 1,020 million, respectively. The current price is 11, 10, and 9 times PE, respectively, to maintain the “recommended” rating.
Risk warning: the risk of increased competition in the industry; the risk of fluctuating raw material prices; the development of engineering business falls short of expectations.