Event: The company released its annual report for 2023 and the report for the first quarter of 2024. In 2023, the company achieved revenue of 13.512 billion yuan, +4.08% year on year; net profit to mother of 1.3 billion yuan, -21.1% year on year; deducted non-net profit of 1.23 billion yuan, -27.5% year on year; and basic earnings per share of 0.21 yuan. In 23Q4, the company achieved revenue of 3,768 billion yuan, +6.07% year on year; net profit to mother of 149 million yuan, +31.6% year on year; deducted non-net profit of 46 million yuan, or -33.06% year on year. In 24Q1, the company achieved revenue of 3.137 billion yuan, -3.38% year on year; net profit to mother of 349 million yuan, -22.88% year on year; deducted non-net profit of 373 million yuan, -11.96% year on year.
Profitability declined year-on-year due to rent and management fee relief.
Gross profit margin: In 2023, the company's comprehensive gross margin was 34.11%, -10.76 pcts year-on-year. In 23Q4, the gross margin for the single quarter was 31.81%, year-on-year -10.25 pct, and +1.07 pct month-on-month. In 24Q1, the company's comprehensive gross margin was 36.73%, -2.47 pcts year-on-year, and +4.91 pcts month-on-month. Based on dynamic changes in the market, in order to support the continuous operation of merchants, the company continued to reduce some rent and management fees for eligible merchants, leading to a phased decline in rental income and management fee income with high gross profit levels, which in turn affected the overall gross profit margin.
Expense rate: In 2023, the company period cost rate was 24.07%, -0.37 pct year-on-year. Among them, sales/management/R&D/finance expenses were 11.77%/4.29%/0.29%/7.72%, respectively, with year-on-year changes of +0.63 pct/+0.06 pct/+0.01 pct/-1.07 pct. In 24Q1, the company's cost rate was 20.6%, +0.43 pct year-on-year. Among them, the sales/management/R&D/finance cost rates were 7.98%/4.35%/0.26%/8.02%, respectively, with year-on-year changes of +0.41 pct/+0.27 pct/+0.06 pct/-0.3 pct.
Deducted non-net interest rate: In 2023, the company deducted the non-net interest rate of 9.1%, -3.97 pct year-on-year. In 23Q4, the company deducted non-net interest rate of 1.23%, -0.72 pct year-on-year, and -7.99 pct month-on-month. In 24Q1, the company deducted non-net interest rate of 11.89%, -1.16 pct year on year, and +10.66 pct month-on-month.
The main household business is developing steadily, and continuous innovation adapts to market changes. In 2023, the company's leasing and franchise management business/product sales/decoration services reached 69.37/55.56 billion yuan respectively, -11.84%/+31.74%/+12.72% year-on-year respectively. By the end of 2023, the company had operated 414 home furnishing stores in 29 provinces, regions and cities in China, including 86 direct-run stores and 328 franchise stores. The company continues to innovate and adapt to market changes:
1) Investment promotion model innovation. The pilot “one store, two systems” investment model with fixed rent+sales sharing worked well. By the end of 2023, the investment rate of the Harbin Pioneer Store had increased to 98%. It is expected that future promotion will effectively increase the company's overall investment rate.
2) Smart home layout. The company explores the transformation and upgrading of home stores to smart home experience centers. By the end of 2023, the number of smart home brands in the company's home stores had reached 1,357, with a business area of 1.357 million square meters and sales exceeding 161 billion yuan.
3) The marketing model was upgraded. The company built a marketing matrix for mainstream online platforms such as WeChat accounts, video accounts, Douyin, and Xiaohongshu, and co-marketed with factories and dealers to create a variety of popular marketing IP campaigns. In 2023, the company planned to organize 13 large-scale group-level events, driving sales of 79.07 billion yuan, +16.7% over the same period last year.
The shopping center business model has been steadily expanded, and the digital transformation continues to deepen.
In terms of shopping centers, since the end of 2021, the company's shopping center business model has become more and more mature, forming core competitiveness and business characteristics in the three areas of digitalization, intelligence, and unique commercial IP. Changchun's “China Business World” achieved sales of 633 million yuan in 2023, with an annual passenger flow of 10.9476 million. By the end of 2023, the occupancy rate had reached 98.2%.
In terms of digital transformation, in 2023, Dongwo achieved GMV of 97.4 billion yuan, +173% year over year, and opened 2 overseas branches in Macau; in fact, the number of registered users worldwide exceeded 14.77 million, +19%, the number of design cases exceeded 32.686 million, +18.5% over the same period, and the number of models exceeded 12.44 million, +27.4% year over year. Smart Home actually opened 57 new stores and achieved annual sales of over 4.4 billion yuan, +58.4% over the same period last year.
Investment advice: The company is a leader in the domestic pan-home furnishing industry, steadily expanding offline home furnishing stores, steadily expanding the shopping center model to create a second growth curve, and develop efficiently through digital intelligence transformation. The future growth space is broad. The company is expected to achieve basic earnings per share of 0.23/0.25/0.28 yuan in 2024/25/26, corresponding PE is 13X/12X/11X, maintaining the “recommended” rating.
Risk warning: Risk of household consumption demand falling short of expectations, risk of new business layout falling short of expectations, risk of increased market competition.