2024Q1's performance growth rate is impressive. The smart toilet brand continues to gain strength, maintaining that the “Buy” rating company achieved operating income of 2.18 billion yuan (+11.5%) for the full year of 2023, net profit of 219 million yuan (+3.6%) to mother, and net profit of 200 million yuan (+3.8%) after deducting non-return to mother. Looking at a single quarter, the company achieved operating income of 520 million yuan (+32.3%), net profit to mother of 60 million yuan (+47.1%), and deducted non-net profit of 50 million yuan (+54.5%) in 2024Q1.
The company has benefited from falling raw material prices, product structure optimization, improved profitability, and a clear trend of marginal improvement in performance. Considering the intensification of competition in the smart toilet industry, we lowered our profit forecast and added a profit forecast for 2026. The net profit for 2024-2026 is 2.78/3.33/400 million yuan (the original value was 3.06/368 million yuan), the corresponding EPS is 0.67/0.80/0.96 yuan. The current stock price corresponds to 16.7/13.9/11.6 times PE. Overseas channels+independent brands continue to gain strength, and the company has sufficient growth momentum to maintain a “buy” rating.
Revenue: The growth rate of smart toilets and covers was impressive, and the gross margin of domestic and foreign sales products increased year-on-year in 2023. The company's smart toilet and cover revenue growth rate was impressive, and gross margin increased markedly. By product, revenue from water tanks and accessories/smart toilets and cover/same floor drainage system products was 6.2/1.27/210 million yuan respectively, with year-on-year changes of -13.65%/+25.90%/+17.72%, respectively, and gross margins of water tanks and accessories/smart toilets and covers were 25.80%/30.12%, respectively, with year-on-year changes of +1.38/+6.49pct. By region, domestic/overseas revenue was 1,655/540 million yuan, respectively, +17.26%/-3.23% year-on-year, accounting for 75.48%/24.52% of revenue, respectively, and gross margin of 29.32%/30.18%, respectively, with year-on-year changes of +4.57/+5.24pct, respectively.
Profitability: Due to improvements in the 2024Q1 product structure, gross and net margins both increased year-on-year in terms of gross margin. The overall gross margin of the company in 2023 was 29.5% (+4.7pct), and in terms of cost ratio, the period expense ratio was 18.7% (+5.7pct). Among them, the sales/management/ R&D/finance expense ratios were 10.9%/4.6%/4.2%/-1.0%, respectively, compared with +4.6/-0.2/-0.1/+1.3 pct. The increase in sales expenses was clearly mainly due to the increase in brand promotion expenses. Under the combined influence, the company's net sales margin in 2023 was 9.9% (-0.8pct). Looking at the single quarter, the company's gross profit margin in 2024Q1 was 30.2% (+5.0pct), and the share of main or high-margin own-brand products increased further; the proportion of mainly or high-margin own-brand products increased further; the cost ratio for the period was 19.4% (+2.6pct), mainly because the company continued to increase investment in brand promotion, and the sales expense ratio increased 5.8 pct to 11.7% year on year. Under the combined influence, the 2024Q1 net margin was 11.1% (+1.1pct).
Future outlook: Our own smart toilet brand continues to gain strength, and the company's second growth curve has formed the prototype for the company's development. We are optimistic that the company's own smart toilet brand and overseas OEM will continue to support the company's growth. On the revenue side, we believe that intelligent products are still an important growth curve for the company. Domestic companies are successfully incubating their own brands, product functions are constantly being enriched, the price range is constantly being expanded, and offline channel density is expected to be encrypted through home appliance store channels in 2024; foreign companies are actively developing orders from new and old customers, and OEM orders for smart toilets are picking up month by month. On the performance side, we expect that the commissioning of a new production line with a high degree of automation will further expand the company's production capacity level of smart bathroom products while reducing labor costs. We anticipate that the company will create a moat of high cost advantages through manufacturing advantages and a light capital model in channel stores, and that improving profitability is logical.
Risk warning: Private brand promotion falls short of expectations, industry competition intensifies