Incident: The company released its 2023 annual report. The full year of 2023 achieved revenue of 8.19 billion yuan, a year-on-year increase of 25.8%; realized net profit to mother of 260 million yuan, a year-on-year decrease of 26.6%. The performance was in line with expectations.
Yongyu Home also contributed to revenue growth, and the calculation of impairment dragged down performance. The company's revenue growth in 2023 was mainly due to the growth of cross-border e-commerce business and the combined annual revenue of Yongyu Home Furnishing. By product, in 2023, the company's office furniture/upholstered furniture/panel furniture/new material flooring (Yongyu Home) achieved revenue of 34.7/12.9/11.2/1.49 billion yuan, which was +3.6%/+3.0%/-17.7%/+557.2% year-on-year respectively; by region, the company achieved domestic/overseas revenue of 15.3/6.64 billion yuan respectively, or -0.6%/+34.0% year-on-year respectively. In terms of profit margin: The company's gross margin increased 2.0pct to 23.8% year-on-year in 2023, mainly due to the company strengthening supply chain management to improve management efficiency and effectively reduce material procurement costs. In terms of cost control: The company's 2023 sales rate/management rate/R&D rate/finance rate were 8.2%/5.1%/2.7%/0.3%, respectively, and -0.4pct/+0.4pct, year-on-year respectively. In terms of impairment: The company's accrued credit and asset impairment losses in 2023 totaled 280 million yuan, an increase of 210 million yuan over the previous year, hampering performance. The main reason was the increase in Dr. Chef's impairment of goodwill and impairment losses on accounts receivable due to the downturn in the real estate market.
Export demand will improve in 2024, and the OEM business is expected to return to a growth trajectory. In 2023, the company's OEM business achieved revenue of 4.82 billion yuan, an increase of 29.1% over the previous year; considering the combined impact of Yongyu Home (new material flooring business), if it were excluded, the manufacturing business achieved revenue of 3.32 billion yuan in the 2023s, a decrease of 5.1% over the previous year. We believe that with the gradual reduction of inventory pressure from overseas channels and a steady recovery in furniture demand, the company's OEM business is expected to return to a growth trajectory in 2024.
At the same time, the company actively expanded its market footprint and successfully extended the market to the Middle East and South America. For example, the company signed a cooperation agreement with the Emirati company Mass Vision.
Develop cross-border e-commerce in all aspects and promote the transformation and upgrading of brand business. The company's cross-border e-commerce and overseas warehouses complement each other. Cross-border e-commerce sales channels cover US online retail platforms such as Amazon, Wayfair, and Walmart, as well as major domestic overseas e-commerce platforms such as TikTok and TEMU, and have social media such as Facebook and Instagram. At the same time, we have built 5 warehousing and distribution centers in North America to accurately cover the distribution scope of end consumer products and reduce cross-border logistics and transportation costs. According to Hugo's cross-border data, the company achieved the number one sales volume in the furniture category on the TikTok platform in 2023. In 2023, the company's e-commerce business achieved revenue of 1.62 billion yuan, a significant increase of 60.5% over the previous year; promoted the company's OBM business to achieve revenue of 3.36 billion yuan, an increase of 21.3% over the previous year. Benefiting from the growth of cross-border e-commerce sales, in the first quarter of 2024, the company achieved revenue of 2.35 billion yuan, a year-on-year increase of 39.0%; net profit to mother was 100 million yuan, an increase of 31.2% over the previous year.
Profit forecast and investment rating: The company's cross-border e-commerce is developing rapidly, and the OEM business is expected to benefit from overseas channel replenishment and demand recovery. According to the company's latest annual report, we raised the company's net profit forecast for 2024/2025 to 55/ 660 million yuan (previous value was 52/62 million yuan), and the estimated net profit for 2026 is 770 million yuan. The corresponding EPS is 3.99/4.78/5.56 yuan, and the corresponding PE is 10.8X/9.1X/7.8X, maintaining a “buy” rating.
Risk warning: The intensity of US interest rate cuts and real estate recovery fell short of expectations; the deterioration of trade relations between China and the US exceeded expectations; the risk of fluctuations in exchange rates and shipping costs exceeded expectations; and the development of independent brands fell short of expectations.