2023/1Q24 results are largely in line with our expectations
The company announced 2023 and 1Q24 results: 2023 revenue of 14.647 billion yuan, +6.94% year on year; net profit to mother of 977 million yuan, +1.64% year over year. Corresponding to 4Q23, revenue was 3.892 billion yuan, +30.66% year over year; net profit to mother was 241 million yuan, +105.07% year over year. 1Q24 revenue was $3.474 billion, +22.79% YoY, and net profit to mother was $173 million, +24.74% YoY. The company plans to pay a cash dividend of 4.0 yuan for every 10 shares, with a cash dividend rate of 33.5%. The company's 2023/1Q24 results were largely in line with our expectations.
Development trends
Export sales have basically recovered to a historic peak: 1) After experiencing rapid growth during the epidemic, the European and American small home appliance markets experienced significant inventory removal, until the end of the 3Q23 inventory removal cycle. 2) Affected by this, the company's export sales growth rate changed from 2Q23 to positive. 4Q23/1Q24 export sales revenue recovered to a high growth rate of +52%/+30% year-on-year, and the scale of export sales was close to an all-time high. In 2023, export revenue was 10.81 billion yuan, +11% year-on-year. Compared to 2021 export revenue, 2023/4Q23 export revenue -7%/-14%. 3) The company's small household appliances category continues to expand, small kitchen appliances maintain its leading edge in global foundry, and small household appliances and personal care appliances are growing rapidly.
Domestic brand business stabilized: 1) In 2023, China's small home appliance market (excluding cleaning appliances) was affected by a decline in demand for optional products, which was significantly lower than expected. 2) Affected by this, the company's domestic sales revenue in 2023 was 3.84 billion yuan, -3% year-on-year; of these, independent brand revenue was -6%, and Morphy Technology's revenue was -29% year-on-year, which was clearly under pressure. 3) According to AVC data, sales of traditional e-commerce channels of 1Q24 kitchen appliances were -3% year-on-year, and the popularity of 4Q23 improved markedly. Sales in March were +3% year-on-year, and traditional e-commerce sales of the 1Q24 Morphy brand were +2% year-on-year. We estimate that the company's 1Q24 Mofei brand is still under pressure, and Dongling, Baishengtu and domestic OEM trends are good. Judging from the trend, the company's domestic sales brand business has begun to improve steadily.
4Q23/1Q24 profit margins improved year over year. On 2023/1Q24, the company's gross margin remained flat at 22.7%/21.9% year-on-year. The effects of cost reduction and efficiency measures such as the company's technological innovation and production efficiency improvement were obvious in 2023. The company focuses on the efficiency of sales expenses. 4Q23/1Q24, the company's sales expenses ratio was -0.5/-0.3ppt year-on-year. Foreign exchange profit and loss in 2023, and forward foreign exchange instrument investment income/fair value change profit and loss contributed 165 million yuan to the company's operating profit in 2022, and a negative year-on-year contribution of 1.55 million yuan in 1Q24. 2023/4Q23/1Q24, the company's net interest rate was 6.7%/6.2%/5.0%, -0.3/+2.2/+0.1ppt, respectively.
Profit forecasting and valuation
In view of the improvement in the company's domestic and foreign sales, we raised our 2024/2025 profit forecast by 4%/6% to 11.77/1,314 billion yuan. The current stock price corresponds to 2024/2025 12.7x/11.4x P/E. Maintaining an outperforming industry rating, considering the recent recovery in the home appliance sector's overall valuation, we raised our target price by 15% to 21.74 yuan, corresponding to 15.2x/13.6x P/E in 2024/2025, with 20% room for an increase compared to the current stock price.
risks
The risk of fluctuations in market demand; the risk of fluctuations in the RMB exchange rate; the risk of fluctuations in raw material prices.