Incident: Xinbao Co., Ltd. announced its 2023 annual report and 2024 quarterly report. In 2023, the company achieved revenue of 14.65 billion yuan, YoY +6.9%, and realized net profit of 980 million yuan, YoY +1.6%; after conversion, 2023Q4 achieved revenue of 3.89 billion yuan and YoY +30.7% in a single quarter, achieving net profit of 240 million yuan and YoY +105.1%. In the 2024Q1 quarter, the company achieved revenue of 3.47 billion yuan, YoY +22.8%; realized net profit to mother of 170 million yuan, YoY +24.7%.
We believe that demand for small household appliances is high overseas, Xinbao's export sales continue to grow rapidly, and the domestic sales business continues to improve.
Export sales continued to increase rapidly, and domestic sales gradually improved: Looking at the subregions: 1) The export sales revenue of 2023Q4 and 2024Q1 Xinbao increased by about 51.6% and 30.0%, respectively. Benefiting from the low base in the same period last year and the recovery in demand for small household appliances from overseas, and Xinbao actively expanded the fields of household appliances, baby appliances, personal care and beauty appliances, refrigeration appliances, etc., the company's export revenue continued to grow rapidly. 2) The domestic sales revenue of 2023Q4 and 2024Q1 Xinbao increased by about 0.5% and 7.0%, respectively. Xinbao is vigorously developing its own domestic brand business, and the domestic sales revenue growth rate is picking up quarter by quarter. Considering the domestic consumer trend of small household appliances and the base of various brands, we infer that the revenue performance of Morphy in Q1 was stable, and that the revenue of Dongling and Baishengtu increased year-on-year. According to Jiuqian data, Q1 Mofei, Dongling, and Yixengtu online sales YoY -25.8%, +14.9%, and +8.5%. Looking ahead, Xinbao's domestic brands will continue to expand new products and channels, and the domestic sales revenue growth rate is expected to pick up; overseas demand continues to improve, and Xinbao's export sales revenue is expected to continue to grow.
Q1's profitability increased slightly year over year: Xinbao's Q1 gross margin was basically the same year on year, and net profit margin to mother was +0.1 pct year over year. The company's profitability has increased, mainly due to: 1) The expansion of revenue scale enhances the scale effect, and the company strengthened cost control, and improved operating efficiency. Q1 management, sales, and R&D cost rates were -0.8 pct, -0.3 pct, and -0.3 pct year-on-year. 2) Exchange income from fluctuations in the exchange rate of RMB against the US dollar increased, and the Q1 financial expenses ratio was -2.0pct year over year. Overall, the fee rate for the Q1 period was -3.4 pct. The increase in net interest rate was less than the reduction in the fee rate during the period, mainly due to foreign exchange hedging generated investment income and fair value change profit and loss. The ratio of Q1 fair value change income and investment income to revenue was -2.0pct and -0.4pct year-on-year. In the future, with the improvement of the company's domestic sales operations and the increase in the scale of export sales, profitability is expected to continue to improve.
Q1 Net operating cash flow outflow: Q1 Xinbao's net operating cash flow was -220 million yuan (-190 million yuan in the same period last year). We estimate that it is mainly due to seasonal factors and delivery pace. Q1 YoY +27.3%/+34.1% of cash received from sales of goods, provision of labor services/purchase of goods, and receipt of labor payments, respectively. The growth rate of the latter was higher than the former, which led to an increase in the net outflow of operating cash flow in a single quarter. For reference, the inventory volume at the end of the period YoY was +13.9%. As subsequent companies gradually ship back the funds, we expect the company's cash flow situation to improve and the revenue scale to increase.
Investment advice: Xinbao Co., Ltd. is the leading exporter of Western-style small household appliances in China. The company's domestic independent brands continue to launch new products and expand new channels, and there is room for future growth. As overseas consumer demand for small household appliances gradually recovers, the company's export revenue is expected to continue to rise. The company's EPS for 2024 to 2026 is expected to be 1.35/1.56/1.83 yuan respectively, maintaining a buy-A investment rating, giving the company a 2024 PE valuation 18x, which is equivalent to a six-month target price of 24.26 yuan.
Risk warning: RMB has greatly appreciated, raw material prices have risen sharply, and overseas demand has dropped sharply.