2023 and 1Q24 results are in line with our expectations
The company announced 2023 and 1Q24 results: 1) In 2023, it achieved operating income of 7.795 billion yuan, +7.22% year over year; net profit to mother was 924 million yuan, +17.8% year over year. It is proposed to pay a cash dividend of 8.5 yuan for every 10 shares, corresponding to a cash dividend rate of 67.7%. 2) Corresponding to 4Q23 revenue of 2,281 million yuan, +10.50% year-on-year; net profit to mother was 265 million yuan, -4.57% year-on-year. 3) 1Q24 revenue of 1,583 million yuan, +5.3% YoY; net profit to mother was 121 million yuan, +23.48% YoY. The company's 2023 and 1Q24 results met our expectations.
Gradually getting affected by the post-real estate cycle: 1) Affected by the post-real estate cycle and internal structural adjustments, the company's operations have fluctuated greatly since 2018, and the overall growth rate has slowed significantly compared to before. 2018-2023 revenue CAGR -0.5%, net profit to mother CAGR 0.5%, and basic recovery has been achieved since 2023.
1Q24 revenue was also close to the high level of Q1 in a single quarter, while profit margins recovered well. 2) By channel, the company focuses on improving the single-store output of retail channels, as well as the network coverage and refined management of distribution channels. We estimate that the 2023 and 1Q24 home furnishing channel performance may be better than the company as a whole. Commercial licensing channels are mainly aimed at industries, offices, commercial chains, etc., benefiting from increased demand for refurbishment after the epidemic. The performance was good in 2023, but there may be a marginal decline in 1Q24. E-commerce channels have been adjusted since 2Q22. 2H23 has begun to resume slight growth, while profitability has further improved. Overseas business is affected by the regional macro environment, and we estimate 1Q24 performance may be under pressure.
Financial analysis: 1) Benefiting from internal platformization and digital cost reduction, the company has continued to unleash profit elasticity since 2023. The gross margin in 2023 was +4.6ppt to 40.3% year-on-year, returning to an all-time high. 1Q24 continued this trend, with gross margin +1.6ppt to 38.5% year over year. 2) In addition, in order to increase its share and increase its market investment efforts, the 2023/1Q24 sales expenses ratio was 18.5%/19%, respectively. Under the combined influence, 2023/1Q24 net interest rates were 11.9%/7.6%, respectively, +1.1/+1.1ppt, and profitability continued to increase. 3) The cash flow from operating activities in 2023 was 1.67 billion yuan, which was significantly higher than net profit, and the operating quality was good.
Development trends
The company's lighting business is mainly domestic sales. Due to the negative impact of the post-real estate cycle, it has experienced many years of adjustments, and has begun to recover since 2023. Furthermore, the company significantly increased its dividend rate in 2023, which helped improve the valuation. The current share of overseas business is low, and the overall performance is relatively stable.
Profit forecasting and valuation
The profit forecast for 2024 and 2025 remains largely unchanged. The current stock price corresponds to 2024/2025 12.2 times/11.0 times P/E. Maintaining an industry rating and a target price of 23.00 yuan, corresponding to 16.6 times the 2024 price-earnings ratio and 15.1 times the 2025 P/E, there is 36.6% upside compared to the current stock price.
risks
Risk of fluctuations in market demand; risk of increased competition; risk of a decline in real estate sales exceeding expectations.