Description of the event

The company released its 2024 quarterly report: achieved revenue of 1.37 billion yuan, an increase of 1% year on year, attributable net profit of 50 million yuan, an increase of 18% year on year, and a 3% year-on-year increase after deducting non-net profit.

Incident comments

Per capita output continues to rise. The company's revenue growth rates in the past five quarters were 5%, 2%, 2%, 1%, and 1%, respectively. Despite a weak external environment and a reduction in the number of company personnel, revenue has maintained positive growth, and per capita output continues to rise. The company appropriately complements regions with good performance growth and personnel needs, and pays more attention to the ability development of currently deployed personnel and the achievement of per capita efficiency. By category, revenue from the new scenario grew rapidly in the first quarter. For example, the revenue growth rate of household products was close to 40%, and the revenue growth rate of other construction hardware products was about 30%, which made up for the decline in door and window hardware revenue to a certain extent. The new scenario is growing rapidly. First, it stems from the company's active exploration of new scenario applications, and second, it is affected by the construction business settlement according to the project schedule.

Profitability is rising steadily. The company's gross margin for the first quarter was about 30.4%, up 0.3 percentage points year on year. Although the product structure changed (the revenue share of products in the new scenario increased, and its gross margin was lower than that of traditional products such as door and window hardware), the gross margin of individual categories improved year on year, mainly due to the relative stability of the purchase price of major raw materials and improvements in internal efficiency; the rate for the period was about 32.2%, which remained stable year on year. The sales rate decreased 1.2 percentage points year on year, and the management, R&D, and finance rates increased 0.4, 0.4, and 0.2 percentage points year on year, respectively. The final net interest rate was about -3.4%, an increase of 0.8 percentage points over the previous year.

Cash flow is stable, and it is one of the companies with the least B-side risk. Net cash flow from operating activities in the first quarter was -61 billion yuan, compared to -360 million yuan in the same period last year. The revenue ratios for the first quarter of the past three years were 1.05, 1.18, and 1.01, respectively. This year's revenue ratio declined slightly, mainly due to: first, there was a certain change in the receipt structure. Factoring payments increased year over year, but factoring will also endorse suppliers to make payments at the same time; second, some repayments at the end of 2022 were delayed until 2023Q1, making the revenue ratio for the same period last year higher than average. Accounts receivable and notes at the end of the period were approximately $3.6 billion, a year-on-year decrease of $480 million, and there was also a month-on-month decline.

The company focuses on small business, has not relaxed its credit policy, continues to control repayment risk, and the risk of receivables is very small.

The balance to debt ratio has been declining steadily. The company's balance ratio has continued to decline since 2022, falling to 46% in 2023, and 2024Q1 falling to 41%. Capital expenditure will expand steadily over the next few years. Currently, the company is carrying out three major capital increase and production expansion projects, namely the third factory at the Dongguan headquarters, the North China production base in Henan, and the Xiaolan production base in Zhongshan. Each base invests in different industries. Among them, the Henan base mainly revolves around the engineering industry. The characteristics of the industry require large-scale production plants, and some of them have now been put into operation; the third headquarters plant is a smart home and smart security product manufacturing project, which is currently in the early stages of infrastructure; the Zhongshan Xiaolan project mainly focuses on its own and controlled industries as core investments, such as mechanical locks, smart locks, shower rooms and lighting industries. These industries have formed a certain scale and market competitiveness. Through self-built industrial parks, the problem of long-term rental production restrictions can be solved, making full use of the supporting resources of Xiaolan's local and surrounding industrial chain.

Stick to the strategy and come out clean. The company chose a direct sales model in the small b home building materials industry, and the business naturally fluctuated. Prior to this real estate industry crisis, the company took the lead in shrinking accounts receivable, actively investing in categories and sinking channels, and finally entering the payback period — net interest rates have been steady and rising since the second half of 2023, and it is expected to continue to recover in the future. The company's net profit for 2024-2025 is estimated to be 577 million yuan or 73 million yuan, corresponding to 18 or 14 times the valuation, with a margin of safety.

Risk warning

1. The real estate industry has declined sharply;

2. Prices of raw materials fluctuate greatly.