Key points of investment:
The 23-year performance was in line with expectations. 24Q1 was slightly lower than expected, and the implementation of a new phase of equity incentives continued to bind core employees. The company released the 2023 annual report and the 2024 quarterly report. For the full year of 2023, it achieved a total operating income of 11.02 billion yuan, and realized net profit of 1,733 billion yuan, +10.20% year-on-year, and realized net profit after deduction of 1,584 billion yuan, +7.06% year-on-year; of these, 23Q4 achieved revenue of 3.269 billion yuan, or +7.71% year-on-year, and realized net profit of 360 million yuan. Overall performance was in line with expectations.
In 24Q1, the company achieved revenue of 2,237 billion yuan, and achieved net profit of 398 million yuan, +2.49% year over year, and realized net profit of 352 million yuan after deduction, +3.34% year over year, which is slightly lower than the expectations given in our performance outlook report. It is expected mainly due to factors such as the decline in sales in March and the high base brought about by the rapid growth rate of the engineering channel during the 23Q1 period.
At the same time, the company released a 24-year stock option incentive plan (draft). It plans to grant 5.75 million stock options to 341 people, including middle management and core executives of the company, which is conducive to fully mobilizing the enthusiasm of the company's core employees.
The resilience of the kitchen and bathroom industry is outstanding, and the company's channel layout is complete. According to Aowei Cloud Network (AVC) retail data, retail sales of large kitchen and bathroom plates (smoke, stoves, electric heating, heating, washing, built-in, clean, integrated stoves) in China reached 166.9 billion yuan in 2023, an increase of 5.3% over the previous year. Among them, the total scale of the categories in demand (smoke, stoves, electric heating, heating) was 99.8 billion yuan, an increase of 6.5% over the previous year; the total scale of product demand categories (elimination, washing, embedding, cleaning) was 42.3 billion yuan, an increase of 8.6% over the previous year; and the total scale of integrated stoves was 24.9 billion yuan, down 4.0% year on year. At the company level, the channel layout is complete, forming three major channels, mainly offline retail, online e-commerce, and decoration projects, as well as overseas channels. The company's products such as smokesters and all-in-one steaming machines all rank among the highest in the industry in the dual-line market share. According to the AVC (AVC) Real Estate Report, the “Boss” brand had a market share of 31.9% in the decoration channel in 23 years, ranking first in the industry, and working together through multiple channels.
Profitability remains steady. In '23, the company achieved a gross sales margin of 50.65%, a slight increase of 0.67pct year on year, and a gross margin of 50.65% in 24Q1, or 4.14pcts year on year. It is expected to be mainly due to a combination of factors such as: 1) low gross profit margin for new categories; 2) channel strategy adjustments; and 3) rising copper prices year on year. In terms of period expenses, the company's sales expenses ratio in '23 was +1.35pcts to 26.80%, and the management/finance expenses ratio was -0.01/-0.16pct to 4.19%/-1.69% year-on-year. The total amount of bad debt reserves for each item of the company's 23 accounts receivable was about 77.54 million yuan, which had a certain impact on the performance side. In the end, the company recorded a net interest rate of 15.31% for 23 years, +0.14pct year on year, and the 24Q1 net interest rate reached 17.65%, a slight decrease of 0.08 pct from the previous year.
The dividend ratio was increased, and the “buy” investment rating was maintained. Considering weak industry demand, we slightly lowered our previous profit forecast for the company (previous value was 2,237/2,492 billion yuan) and added a 26-year profit forecast. We expect to achieve net profit of 19.09/21.05/2,337 billion yuan in 24-26, +10.2%/+10.3%/+11.0% year-on-year, corresponding to the current price-earnings ratio of 11/10/9 times, respectively. The company plans to distribute cash dividends of 5 yuan (tax included) to all shareholders for every 10 shares, plus the special dividend announced in January 24, totaling about 944 million yuan, accounting for 54.5% of net profit for the year 23. In the same period, the company issued a shareholder return plan, and profits distributed in cash accounted for no less than 50% of the consolidated net profit achieved in the current year. The dividend ratio has increased significantly compared to the previous year. It has long-term allocation value and maintains a “buy” investment rating.
Risk warning: the risk that real estate data is sluggish and demand falls short of expectations; industry competition increases risk; risk of fluctuating raw material prices.