Performance summary: The company released its 2023 annual report and 2024 quarterly report. In 2023, the company achieved revenue of 2.18 billion yuan, +11.5% year on year; realized net profit of 220 million yuan, +3.6% year on year; realized deducted non-net profit of 200 million yuan, +3.8% year on year. Looking at a single quarter, 2023Q4 achieved revenue of 640 million yuan, +11.3% year on year; realized net profit of 40 million yuan, -24.8% year over year; realized net profit of 40 million yuan after deduction, or -23.2% year on year. 2024Q1 achieved revenue of 520 million yuan, +32.3% year on year; realized net profit of 60 million yuan, +47.1% year over year; realized net profit of 50 million yuan after deduction, +54.5% year on year. 24Q1 started off beautifully, and both revenue and profit grew rapidly.
Independent brands drive a steady increase in gross margin, and brand expenses continue to be invested. During the reporting period, the company's overall gross margin was 29.5%, +4.7pp compared to the previous year. The gross margin of 2023Q4 was 32%, +9.4pp compared to the previous year. Benefiting from product structure optimization, smart toilets and covers contributed significantly. By product, the gross margin of water tanks and accessories/smart toilets and cover/same floor drainage products was 25.8%/30.1%/34.9%, respectively, +1.4pp/+6.5pp/+1.8pp compared to the same floor.
By region, the gross margin for export sales was 30.2% (+5.2pp), and the gross margin for domestic sales was 29.3% (+4.6pp).
In terms of cost ratio, the company's total cost ratio was 18.7%, +5.7pp compared to the same period, mainly due to the company's efforts to develop its own brand and increase in marketing and promotion expenses. Among them, the sales expense rate/management expense rate/financial cost rate/R&D expense ratio were 10.9%/4.6%/-1%/4.2%, respectively, +4.6pp/ -0.2pp/+1.3pp/-0.1pp compared to the same period. Taken together, the company's net interest rate was 10%, -0.8pp year on year; 2024Q4 net interest rate was 6.7%, -3.2pp year on year. Furthermore, the company's net operating cash flow in 2023 was $440 million, +20.1% year-on-year, mainly due to the company's increase in idle capital management. The gross margin of 2024Q1 was 30.2%, +5pp year on year. The increase in the share of independent brands continues to drive improvements in profitability. In terms of cost ratio, the company's total cost ratio was 19.4%, +2.6pp year over year, mainly due to the increase in brand investment costs. Among them, the sales/management/ financial/ R&D expenses ratio was +5.8pp/ -1.7pp/-1.7pp/+0.1pp. Taken together, the company's net interest rate was 11.2%, +1.1pp compared to the previous year.
Revenue from smart toilets has increased rapidly, and brand power is gradually being strengthened. In 2023, the smart toilet and cover business revenue was 1.27 billion yuan, +25.9% year-on-year, accounting for 58% (+6.7pp) of revenue. According to the company's annual report, the average price of online smart all-in-one machines and smart toilet covers in 2018 was 4,060 yuan and 2,052 yuan respectively; in 2023, the average prices for smart all-in-one machines and smart toilet covers were 2505 yuan and 1,383 yuan respectively. Under the fierce price competition in the industry, the company's own brand and OEM business went hand in hand, and the smart toilet business achieved rapid growth, demonstrating the advantages of product differentiation. As the number of brand participants in the smart toilet industry increases, the price band sinks, and the category penetration rate increases rapidly, the market is expected to continue to expand. Looking ahead, the company continues to rely on online channel traffic advantages such as Douyin and Tmall, while accelerating the expansion of offline specialty stores and home appliance channel outlets, and its own brands are expected to maintain a high growth rate. Furthermore, the company continues to expand smart toilet OEM customers, and leading overseas customers are expected to gradually increase in 2024, driving the growth of the smart toilet OEM business. Revenue from water tanks and accessories products was 620 million yuan, -13.7% year-on-year. Affected by overseas customer inventory removal, the growth rate of the water parts business was under pressure. Revenue from the same level drainage system was 210 million yuan, +17.7% year-on-year, with steady growth. On the product side, the company continues to invest in new product R&D and technology development, and some R&D results have reached mass production, such as hidden water tank power lifting systems, all-in-one machines with built-in safety devices, etc., which are expected to enhance the competitiveness of the company's product market.
Domestic sales are growing rapidly, and overseas markets are temporarily under pressure. By market, the company has grasped the domestic smart bathroom development trend, and the scale of domestic sales revenue is expanding rapidly. By market, the company's domestic/export revenue in 2023 was 1,655/540 million yuan respectively, +17.3%/-3.2% year-on-year, accounting for 75.5%/24.5% of revenue. The slight decline in export sales was mainly due to customers in the water parts foundry business leaving the warehouse. As overseas demand recovers and the company expands the smart toilet OEM business for overseas customers, export sales are expected to improve marginally in 2024.
Profit forecasting and investment advice. EPS is expected to be 0.63 yuan, 0.78 yuan, and 0.94 yuan respectively in 2024-2026, and the corresponding PE is 18 times, 15 times, and 12 times, respectively. Considering that the penetration rate of the smart bathroom industry is expected to increase at an accelerated pace, the company's own brands are growing rapidly and maintaining a “buy” rating.
Risk warning: the risk of large fluctuations in raw material prices, the risk of increased competition in the industry, the risk of falling short of expectations in real estate sales, the risk of fluctuating customer orders, and the risk of large fluctuations in the RMB exchange rate.