Event: On April 26, 2024, OPP Lighting released its 2023 Annual Report and 2024 Quarterly Report.

2023 revenue/net profit attributable to mother/ net profit after deduction of net profit of 7.795/9.24/848 billion yuan, respectively, were +7.22/ +17.85/ +34.17% year over year, respectively. Among them, 2023Q4 was 22.81/2.65/283 million yuan, respectively, +10.50/-4.57/ +12.98% year-on-year respectively. 2024Q1 was 1,583/1.21/103 million yuan, or +5.35/ +23.48/ +36.42%, respectively. The company plans to pay a cash dividend of 8.5 yuan for every 10 shares, totaling 626 million yuan, with a dividend rate of 67.7%.

2023H2 Domestic sales growth is accelerating, and overseas revenue growth may be negative due to local regional strategic adjustments.

Domestic and export sales revenue in 2023 were $698/736 million, respectively, +7.00/ +6.27% year-on-year.

Among them, 2023H2 was +9.28/ -1.23% year on year, respectively. The 2023H2 export revenue growth rate turned negative mainly due to strategic adjustments in overseas regions and is expected to continue until 2024Q1, and domestic sales growth will accelerate. Looking at domestic sales sub-channels, the home furnishing channel is expected to benefit from the upgrading of retail channel stores and the expansion of the number of hardware channel stores to double digits in 2024Q1; the commercial license channel 2023H1 is expected to increase in single digits throughout the year, and 2024Q1 is affected or declined by real estate; in the middle and high-end transformation process in 2023, the e-commerce channel is expected to decline throughout 2023. 2023H2 has improved, and 2024Q1 may maintain a positive trend to achieve growth.

2024Q1 gross margin increased twice, and it is expected that sales expenses will drive revenue growth. Gross profit margin:

2023A/2023Q4/2024Q1 were 40.33/43.20/ 38.47% respectively, +4.61/+2.94/+1.64pct, respectively. The increase was mainly due to platform-based cost reduction, product structure optimization, etc. Expense side: Sales/management/R&D/finance expense rates in 2023 were 18.48/4.09/5.40/ -1.42%, respectively, +2.63/-0.34/+0.32/-0.91pct, respectively, of which 2023Q4 was 19.84/5.37/5.66/ -1.04%, respectively, and +4.01/-0.14/+1.03/-1.27pct, respectively. The 2024Q1 sales/management/R&D/finance expense ratios were 19.15/4.93/5.27/ -0.50%, respectively, +1.39/+1.14/ -1.72/-0.26pct, respectively. The increase in sales expense ratio was mainly due to an increase in retail and e-commerce channel marketing investment. The financial cost ratio optimization was mainly an increase in interest income. Net profit margin to mother: 2023A/2023Q4/2024Q1 was 11.85/11.63/ 7.64%, respectively, +1.06/-1.84/+1.12pct, a record high in 2023. The 2023Q4 decline was mainly due to increased cost investment, which is expected to help revenue growth in 2024.

Investment suggestions: The company is a leader in the general lighting industry. The product-side layout covers low, middle and high-end people and continues to be promoted, retail channel stores continue to expand and increase single store output, commercial license business focuses on expanding leading projects to increase share, e-commerce deepens transformation to the middle and high-end, continues to develop new business areas overseas, and actively expands categories such as Wall Kai and Yuba. It is optimistic that revenue will continue to grow steadily, and profitability will reach new heights and are expected to be maintained at a record high. We expect net profit to be 10.36/11.60/1.298 billion yuan for 2024-2026, 1.39/1.55/ 1.74 yuan for EPS, respectively, and 12.14/10.84/9.68 times PE for the current stock price, respectively. Maintain a “Recommended” rating.

Risk warning: Increased market competition, declining real estate industry boom, large fluctuations in raw material prices, exchange rate fluctuations, channel changes, and performance of new products falling short of expectations, etc.