2024Q1 export sales continued to recover, and domestic sales were steady and continued to outperform industry performance. Maintaining a “buy” rating of 2024Q1, the company achieved revenue of 5.378 billion yuan (+8.38%, same below), net profit to mother of 470 million yuan (+7.23%), and net profit of 461 million yuan (+8.06%) after deducting non-return to mother. Single-quarter results remained steady, with export sales continuing to recovery/domestic sales outperforming industry performance growth. We continue to be optimistic about steady operation/stable profit margins, high quality and steady operation, or maintaining a high dividend ratio. We maintain our profit forecast for 2024-2025 and add a profit forecast for 2026. We expect net profit to mother of 24.22/26.88/2,935 billion yuan from 2024 to 2026, corresponding EPS of 3.00/3.33/3.64 yuan, and the current stock price corresponding to PE is 19.4/17.5/16.0 times.

2024Q1 export sales are expected to maintain a high growth trend. With steady performance under domestic sales channels and product optimization, the business trend of SEB Group, the company's major customer, continues to improve. The 2024Q1 consumer business achieved revenue of 1,635 billion euros (+5.8% LFL). By region, EMEA/American revenue was +8%/+14% year over year, respectively.

Revenue in Central and Western Europe/other regions of EMEA was -3.1%/+32.9% year-on-year, respectively. The growth rate of the Western European market slowed but other regions maintained a rapid growth trend; revenue in Central America and North America was +7.7%, and the revenue growth rate in North America increased month-on-month in 2023Q4, and overall demand for small overseas household appliances was stable. Considering SEB Group's good business performance, we expect the company's export sales to maintain a high growth rate in 2024Q1. In terms of domestic sales, SEB data shows that in 2024Q1, China's regional revenue was +0.5% year-on-year. We expect the company's domestic sales to remain stable or increase slightly in 2024Q1, with offline continued deepening the OTO market or causing some increase. Looking ahead, SEB is a global leader in small household appliances, and the company's export sales are expected to grow steadily as business expectations improve. At the same time, they are optimistic about steady domestic sales operations/stable profit margins.

The 2024Q1 gross margin was disrupted by the sales structure. The ratio of expenses to output was still superior. The gross margin in 2024Q1 was 24.42% (-0.8pct). The year-on-year decline in gross margin may be due to the high growth rate of low gross profit export sales and a relatively low domestic sales growth rate. On the expense side, the expense ratio was 13.84% (-0.43pct) during the 2024Q1 period, with sales/management/R&D/finance expense ratios of 10.94%/1.71%/1.75%/-0.57%, respectively, -0.13/-0.2/+0.08/-0.17pct, respectively. The sales/management fee rate control effect was good, and the decline in the financial expense ratio was mainly due to exchange gains brought about by the devaluation of RMB during the reporting period (there were exchange losses during the same period). Under the combined influence, 2024Q1 net interest rate was 8.73% (-0.09pct), after deducting non-return net interest rate of 8.57% (-0.03pct).

Risk warning: SEB order fulfillment falls short of expectations; raw material prices rise; industry competition intensifies, etc.