Incidents:
The company released the 2023 Annual Report and the 2024 First Quarter Report:
In 2023, the company achieved revenue of 2.84 billion yuan, +11.47% year-on-year; net profit to mother was 219 million yuan, +3.59% year-on-year. Among them, 2023Q4 achieved revenue of 638 million yuan, +11.29% year over year; net profit to mother was 43 million yuan, -24.82% year over year. Q4 revenue grew steadily, while the profit side declined year-on-year. The main reason was that in the Q4 single quarter, the company increased its investment in brand promotion expenses, and the sales expenses ratio was +13.61 pct year on year, resulting in a net interest rate of -3.27 pct year on year.
2024Q1's revenue was $523 million, +32.30% year over year; net profit to mother was 59 million yuan, +47.15% year over year. The first quarter results were high, which is expected to be mainly due to the company's own brand expansion.
Product structure optimization, rapid growth of smart toilets
In 2023, the company's revenue for smart toilets, covers, water tanks and accessories was 1,266 billion yuan and 620 million yuan respectively; gross margins were 30.12% and 25.80%, +6.49pct and +1.38pct, respectively. The smart toilet business maintained steady growth, and gross margin increased significantly, mainly due to the rapid development of the company's own brand. In addition, the company is steadily promoting same-layer drainage system products. In 2023, the business revenue was 210 million yuan, +17.72% over the same period last year.
Gross margin has increased significantly, and investment in brand promotion has increased
The company's overall gross profit margin and net interest rate in 2023 were 29.53% and 9.85%, respectively, +4.72pct and -0.77pct, respectively. Among them, the 2023Q4 company's gross profit margin and net margin were 32.02% and 6.45%, respectively, +9.37pct and -3.27pct, respectively. The increase in gross margin mainly benefited from the increase in the revenue share of the company's high-margin smart toilets and covers, and its own brand; the net profit margin declined year-on-year, mainly due to the company's increased brand promotion, 2023Q4 sales expenses reached 114 million yuan , +367% year-on-year, and the fourth quarter accounted for about half of the annual sales expenses, resulting in a sales expense ratio of +13.61 pct year over year to 17.86%.
2024Q1's gross profit margin and net interest rate were 30.24% and 11.06%, respectively. The profit level increased steadily. The increase in net interest rate was not as high as the gross profit margin, mainly due to the company's increased investment in sales expenses, which led to a sales expense ratio of +5.84pct to 11.66% year-on-year in the first quarter.
Investment advice:
Rieter has been deeply involved in the sanitary ware industry for more than 20 years, leading the flushing components industry. Its products have gradually expanded from bathroom accessories to the smart toilet field with a wider market space. It continues to benefit from the volume of the smart toilet business, and its performance has maintained good growth. Considering that the company has increased its online and offline channel layout and brand promotion efforts in recent years, cost investment and competitive pressure in the industry, the company's net profit for 2024-2026 is estimated to be 2.71/3.30/ 394 million yuan, respectively, +24.02%/+21.56%/+19.64% year-on-year, corresponding PE is 18/15/13 times, respectively, maintaining a “buy” rating.
Risk warning:
The volume of the smart toilet business falls short of the expected risk; the decline in raw material prices falls short of the expected risk; the launch of new categories falls short of the expected risk; and industry competition increases the risk.