Event: The company publishes its 2023 annual report. During the reporting period, the company achieved revenue of 22.782 billion yuan, up 1.35% year on year; net profit to mother was 3,036 billion yuan, up 12.92% year on year; single Q4 achieved revenue of 6.218 billion yuan, up 0.11% year on year; and net profit to mother of 726 million yuan, up 4.00% year on year.

Revenue bucked the trend, and the sanitary ware category performed well. During the reporting period, the company achieved revenue of 22.782 billion yuan, an increase of 1.35% over the previous year. Among them, kitchen cabinets/ wardrobes and accessories/ bathroom/ wooden doors achieved revenue of 70.31/119.49/11.28/ 1,378 billion yuan, -1.99%/-1.56%/+9.00%/+2.42% year-on-year. The slight decline in revenue from wardrobe accessories is mainly due to the company's supply chain optimization and adjustment of wardrobe accessories, and the phased decline in sales revenue of accessories. In terms of gross margin, the gross margins of kitchen cabinets/closets and accessories/bathroom/wooden doors were 34.33%/36.51%/25.92%/21.47%, respectively, +0.31/+4.73/-0.28/+5.09pcts.

Furnishing/retailing all households go hand in hand, making efforts through multiple channels. The company piloted the promotion of complete home furnishings in 2018, and has now achieved the operation of the “Oupai” and “Platinum” brands; by the end of 2023, there were more than 800 cities that had applied to open Oupai retail homes, and more than 600 cities where retail stores were already operating normally. By channel, distribution/ direct sales revenue was -0.04%/+17.44% to 175.75/829 million yuan, with a net increase of 40 to 8,716 in 2023; on the engineering side, bulk channel revenue in 2023 was +2.61% year-on-year to 3,586 billion yuan.

Cash flow improved, and inventory turnover days declined. The company's net operating cash flow in 2023 was 4.888 billion yuan, compared to 2,410 billion yuan in the same period last year. As of the end of 2023, the company's inventory turnover days were 30.56 days (-3.13 days year on year), and operating capacity recovered; however, the number of accounts receivable turnover days was 21.48 days (+2.51 days year on year), which is expected to be related to the company undertaking more large-scale business in 23 years.

It is proposed to increase the dividend ratio. In '23, the company plans to pay a cash dividend of 1,670 billion dollars, increasing the dividend ratio from 40% to 55%.

Investment advice: The company gives full play to its leading advantages, fights against the Red Sea, advances into the Blue Ocean, and continues to lead the development of the industry. We expect the company's 2024-2026 revenue of 245.68/260.30/28.516 billion yuan, and net profit to mother of 33.51/34.79/38.07 billion yuan, maintaining a “buy” rating.

Risk warning: Market competition intensifies; raw material prices rise; real estate sales decline.