The company's 2023 results are in line with our expectations, and the 1Q24 results are higher than our expectations. The company announced 2023 and 1Q24 results: 2023 operating income of 203,979 billion yuan, +7.9% year-on-year; net profit to mother of 29.017 billion yuan, +18.4% year-on-year. Corresponding to 4Q23, revenue was 48.972 billion yuan, +18.0% year on year; net profit to mother was 8.925 billion yuan, +43.9% year over year. 1Q24 revenue was 36.364 billion yuan, +2.6% year on year, and net profit to mother was 4.675 billion yuan, +13.8% year over year. The company announced that it plans to pay a cash dividend of 23.80 yuan for every 10 shares (after deducting the number of shares in the special repurchase account), corresponding to a cash dividend rate of 45% in 2023. The company's 2023 results are in line with our expectations and in line with the performance forecast. The 1Q24 performance was higher than our expectations. The main reason was that the company focused on profit improvement, and the profit improvement effect was excellent.
Development trends
The air conditioning industry is booming, and the company focuses on improving profits: 1) In 2023, thanks to the air conditioning boom and the company's steady operation, Gree's revenue and profit reached record highs. In 2023, HVAC revenue was 151.2 billion yuan, +12% year over year. 2) Gree continues to promote channel flattening and increase the average price of revenue recognition in the distribution industry chain, driving gross margin up 4.5 ppt year on year in 2023, and gross sales margin increased 2.1 ppt to 22.2% year on year.
3) 1Q24's revenue grew steadily, +3% year over year, slower than the industry. Mainly, the share of second-tier brands increased, and Gree's share declined. 4) At the end of '23, dealers were payable in rebates of 50.881 billion yuan, a decrease of 2.06 billion yuan compared to the beginning of the year. Gree promoted channel reform, the inventory pressure model was no longer there, and the mobilizing effect of rebates in the channel gradually weakened.
Financial analysis: 1) The gross profit margin in 2023 is 30.6% (+4.5ppt year on year), with the main air conditioning business gross margin +4.6ppt year on year, and internal/export gross margin +2.8/+9.4ppt year on year. We believe that factors such as product structure upgrades, raw materials, and exchange rates all contributed. The 2023 sales expense ratio was +2.4ppt year on year, gross sales margin was +2.1ppt year on year, and the net margin was 14.2% (+1.3ppt). In 1Q24, the company's gross margin was +2.0ppt year on year, sales expenses ratio was flat year on year, gross sales margin was +2.0ppt year on year, and net margin was +1.3ppt year on year. 2) In 2023, the company focused on cash flow repayment. Net operating cash flow reached a record high of 56.398 billion yuan. Among them, inventory decreased by 5.735 billion yuan at the end of 23 compared to the beginning of the year.
The cash dividend rate has increased, and the high dividend attributes remain the same: 1) The company's dividend rate fluctuated greatly. The full year of 2019-2023 cash dividend rates (including mid-year dividends) reached 29%, 102%, 72%, 46%, and 45%.
2) The company cancelled a lot of shares, and the cumulative number of cancelled shares in 2020-2023 decreased by 9.2% of the current share capital.
Profit forecasting and valuation
We are optimistic that the air conditioning boom will drive the company's performance growth. The profit forecast for 2024/2025 was raised by 5%/5% to 33.383 billion yuan. The current stock price corresponds to 7.6x/7.1x price-earnings ratio for 2024/2025. Maintaining an outperforming industry rating, taking into account profit forecast adjustments and the recent rise in the valuation center of the home appliance sector, we raised the company's target price by 15% to 50.64 yuan, corresponding to the 2024/2025 price-earnings ratio of 9.1x/8.5x. There is room for 20% increase compared to the current stock price.
risks
Market competition risk; market demand fluctuation risk; raw material price fluctuation risk.