Core views:

Short-term costs increased, and 24Q1 profit declined significantly. The company disclosed its 2023 annual report, with annual revenue of 1.56 billion yuan (YoY +4.0%), net profit to mother of 200 million yuan (YoY +13.3%), gross profit margin 21.2% (YoY+1.7pct), net profit margin of 12.9% (YoY+1.1pct), sales/management/finance/R&D expense ratios of -0.0pct/+0.5pct/+0.3pct/-0.1pct, respectively.

2023Q4 revenue of 300 million yuan (YoY -32.8%), net profit of 26.197 million yuan (YoY -43.9%), gross profit margin 19.0% (YoY-6.3pct), net profit margin 8.7% (YoY-1.7pct), sales/management/finance/R&D expense ratios were +0.7 pct/+1.8/-3.4 pct/+0.8 pct, respectively.

2024Q1 revenue of 320 million yuan (YoY -15.4%), net profit of 10.146 million yuan (YoY -78.1%), gross profit margin of 13.0% (YoY-8.1pct), net profit margin 3.2% (YoY-9.1pct), sales/management/finance/R&D expense ratios were -0.0pct/+2.9pct/-4.0pct/+1.1pct, respectively.

The decline in revenue in 24Q1 was mainly due to product changes, more new products were introduced, and production capacity was climbing. Profits declined sharply, mainly due to large changes in frontline personnel after the holiday season, the company's production efficiency was low, and gross margin dropped 8.1 pct.

Export sales grew well, while domestic sales declined. (1) By product, in 2023, air fryer revenue was 1.18 billion yuan (YoY +8.1%), air oven revenue was 200 million yuan (YoY -16.4%), and deep fryer revenue was 130 million yuan (YoY +12.4%). (2) By region, domestic sales revenue in 2023 was 110 million yuan (YoY -52.2%), and export revenue was 1.43 billion yuan (YoY +14.1%).

Profit forecasting and investment advice. The company focuses on the OEM business of small heated kitchen appliances such as air fryers. The product circuit is very popular, and the company continues to expand new categories, and the export business is expected to maintain good growth. Short-term costs will rise due to personnel turnover problems caused by large order fluctuations. We expect the business situation to gradually recover, and the company's revenue and profit are expected to resume growth. Net profit due to mother in 2024-26 is expected to increase by 14.7%/9.5%/10.7% year-on-year, respectively. The corresponding reasonable value of 13x PE in 2024 is 15.95 yuan/share, giving a “holding” rating.

Risk warning. Overseas demand is weakening, exchange rates fluctuate, customer development is unfavorable, and raw material prices are rising.