Incidents:
Henglin Co., Ltd. released the 2023 Annual Report & 2024Q1 Quarterly Report: In 2023, the company achieved revenue of 8.195 billion yuan, and realized net profit of 263 million yuan, or -26.60% year on year, after deducting non-net profit of 235 million yuan, -27.32% year on year; Q4 achieved revenue of 2,419 million yuan, +28.34% year over year, and realized net profit of 103 million yuan, mainly due to the 2023 annual reduction value of 280 million yuan. 2024Q1 achieved revenue of 2,354 billion yuan, +38.98% year over year, realized net profit of 103 million yuan, +31.20% year over year, net profit of non-return net profit of 103 million yuan, +33.96% year over year.
Cross-border e-commerce embraces multiple platforms and expands manufacturing business into a new landscape
The company's cross-border e-commerce covers American online retail platforms such as Amazon and domestic overseas e-commerce platforms such as Tiktok and TEMU, and has set up 5 warehousing and distribution centers in North America. The e-commerce business continued to grow rapidly in 2023, with revenue of 1,621 billion yuan, +60.50% over the same period last year. Among them, the Tiktok household category ranked first in sales. On the manufacturing side, Yongyu's revenue of 1.49 billion yuan led to revenue growth. ODM/OEM business revenue in 2023 was 4.815 billion yuan, +29.09% YoY. After excluding Yongyu's influence, ODM/OEM revenue was -9.66% YoY.
The company's business expanded to the Middle East and South America in 2023, and subsequent inventory replenishment requirements are expected to restore the contract business.
Efficiency increases repair gross profit margin, and impairment disrupts apparent performance
In 2023, the company strengthened supply chain management, established a group-wide material database, unified inquiry and large-scale procurement to reduce procurement costs, and increase overall gross margin by 2 pct to 23.78%. 2023Q4 net profit turned into loss, and 2023A net interest rate fell 1.84pct to 3.39%. It was mainly affected by falling inventory prices and Dr. Chef's business in 2023. The company's credit and asset impairment amounted to $280 million, disrupting apparent performance. There was an increase in the rate during the period, mainly due to the increase in sales rates in 2023 (+0.40pct year over year). 2024Q1 continues to invest in marketing expenses to expand channels. Sales expenses were +91.94% year-on-year, and sales rates were +3.70pct year-on-year.
Yongyu's subsidiary affects cash flow and has stable operating capacity performance
The company achieved net operating cash flow of 447/158 million yuan in 2023A/2024Q1, respectively. Affected by increased cash payments from Yongyu and other subsidiaries and other business units, the company achieved net cash flow from investment activities of -715 million yuan in 2023, or -116.77% year over year. Accounts receivable/payable/inventory turnover days were 55.11/84.14/101.59 days, respectively. The operating capacity performance was stable.
2024Q1's revenue and profit all achieved a growth rate of 30% +. The main reason is that cross-border e-commerce continues to maintain a strong momentum. In the future, PVC flooring revenue is expected to increase in anticipation of a recovery in US real estate, and the ODM/OEM business is expected to recover.
Profit Forecasts, Valuations, and Ratings
The company's cross-border e-commerce continues to grow rapidly, and the manufacturing sector is expected to benefit from a recovery in overseas real estate demand. Cost reduction and efficiency are expected to improve profits. Operating revenue for 2024-2026 was 104.25/125.52/14.888 billion, respectively, +27.21%/+20.41%/+18.46% year-on-year, and net profit to mother was 5.41/6.74/811 million, respectively, +105.58%/+24.52%/+20.37%, EPS 3.89/4.84/ 5.83 yuan, 3-year CAGR is 45.52%. The company's multi-category layout implements the large household strategy, giving 2024 13 times PE, corresponding to a target price of 50.57 yuan, maintaining a “buy” rating.
Risk warning: Overseas demand falls short of expectations; risk of fluctuations in raw material prices.