Incident: The company released its 2024 quarterly report. 2024Q1 achieved revenue of 756 million yuan, +8% year-on-year net profit, +88% year-on-year, net profit after deduction of 57 million yuan, and +496% year-on-year, mainly due to reduced marketing expenses, increased exchange earnings, changes in the fair value of transactional financial assets, fluctuations in long-term equity investment profit and loss, and a low base for the same period last year.

The overall cost ratio has improved markedly, and the net interest rate due to mother has increased steadily. The 2024Q1 gross profit margin was 32.9%, -2.9 pct year on year, thanks to the 11.5 pct year-on-year reduction in the period fee ratio and 2.5 pct to 5.9% year on year. Among them, the 24Q1 sales expense ratio was 9.1%, -6.0 pct year on year, and -7.2 pct month on month, mainly due to reduced advertising and marketing expenses, -2.2%, financial expenses ratio -2.2%, -5.3 pct year on year, and -4.7 pct month-on-month, mainly due to an increase in exchange earnings. The net cash flow from 2024Q1 operating activities was $83 million, a significant improvement over the same period last year of -$92 million, mainly due to an increase in sales payback and a decrease in procurement expenses.

Major customers cooperate steadily, and independent brands are gradually being cultivated. The company is the main smart electric bed supplier for two major North American mattress giants, TSI and SSB. At the beginning of 2024, the company and TSI extended the manufacturing and supply agreement for electric bed products until March 31, 2027, and renewed the five-year electric bed product manufacturing and supply agreement with SSB. The company cooperated steadily with major customers and maintained its dominant position in the North American market. The domestic independent brand “Schuford” achieved a breakthrough and actively explored and optimized marketing channels. Domestic revenue was +55.1% year-on-year in 2023. The brand effect gradually became apparent. In 2024, the company continued to expand its stores and expand its potential consumer base.

Production capacity at home and abroad is expanding simultaneously, and global supply chain construction is being accelerated. In December 2023, the R&D center and production support plant project (Phase II) of the company headquarters came to an end. After completion, the project will form a data center service with an annual output of 1 million sets of sensors and 24,000 electric beds. In January 2024, Qisheng Vietnam officially started construction at its Binh Phuc plant, with a total investment of about 20 million US dollars, which can produce 80,000 smart beds throughout the process every month. After the Vietnam factory is completed, it will help the company establish a global supply chain system, optimize the supply chain and increase customer stickiness.

Profit forecast and rating: We are optimistic that the company is deeply tied to major customers, and the export sales market continues to grow; actively expanding the domestic marketing network and adding brand effects, the domestic sales situation is expected to gradually open up. The company's net profit to mother is estimated to be 268 million yuan, 299 million yuan, and 333 million yuan in 2024-2026. The corresponding PE is 16x/14x/13x respectively, maintaining the “recommended” rating.

Risk warning: Overseas demand falls short of expectations, fluctuating raw material prices, increased industry competition, etc.