2024Q1's revenue increased 15% year over year, and net profit to mother increased 45% year over year, with excellent performance. The company released its 2024Q1 quarterly report. Revenue increased 14.8% year on year to 800 million yuan, gross margin remained at 37.9% year on year, sales expense ratio was -0.4 pcts to 9.5% year on year, management fee ratio +0.5 pcts to 13% year over year, and financial expenses ratio was -2.8 pcts to -0.4% year on year. We judge that the improvement in financial expenses ratio is related to the company's exchange earnings. In addition, net profit to mother increased by 2 pcts to 9.7% year on year.

The sales performance of all 2024Q1 product lines is expected to show a positive trend, with long-term gross margin rising steadily. In 2023, the company's button/zipper revenue increased 8.95%/6.82% year on year. In terms of volume, button/zipper sales in 2023 increased 4.63%/5.67% year on year. Entering 2024Q1, we judge that each product line will maintain a steady growth trend. In the long run, zipper business revenue is expected to maintain a relatively rapid growth rate. In terms of gross margin, the gross margin of buttons increased by 1.02 pcts to 42.21% year on year in 2023, and the gross margin of zippers increased 2.95 pcts year over year to 41.01% year on year. As a supplier of clothing accessories, the company also pays attention to maintaining customer relationships on the basis of guaranteeing its own profitability, so in the long run, we judge that the gross margin of the company's various product lines may maintain a steady upward trend.

Production capacity will remain stable in 2023, and capacity expansion can be expected in 2024. By the end of 2023, the company's button production capacity was 11.6 billion pieces and the zipper production capacity was 850 million meters, with domestic/overseas production capacity accounting for 85.05%/14.95% respectively. From 2024, we expect the company's Vietnam factory to gradually start production, laying the foundation for customer expansion and business growth. At the same time, the company upgraded and optimized the existing plant equipment in domestic industrial parks, and the production capacity is expected to increase in 2024.

Looking ahead to 2024, we expect the company's performance to grow 18% year over year. Since the beginning of the year, we expect the company's overall order acceptance performance to improve steadily. Looking at the whole year, we judge that the current inventory removal of downstream brands is smooth, and the company's overall business situation will be clearly optimized compared to 2023. Currently, we expect the company's revenue and performance in 2024 to be expected.

Profit forecast and investment advice: We expect the company's net profit to be 6.6/76/8.8 billion yuan in 2024-2026. The current price corresponds to 2024 PE 22 times, maintaining a “buy” rating.

Risk warning: The risk of raw material prices fluctuating, the release of production capacity falling short of expectations, the risk of fluctuating demand, and uncertainty about the pace of capacity release.