Incident: Rattle publishes its 2023 annual report and 2024 quarterly report. In 2023, the company achieved operating income of 2.84 billion yuan, an increase of 11.47%; net profit to mother of 219 million yuan, an increase of 3.59%; net profit after deducting net income of 200 million yuan, an increase of 3.83% over the previous year. Among them, 23Q4 achieved operating income of 638 million yuan, a year-on-year increase of 11.29%; net profit to mother was 43 million yuan, a year-on-year decrease of 24.82%; and net profit after deducting net income of 37 million yuan, a year-on-year decrease of 23.12%. 24Q1 achieved operating income of $523 million, up 32.30% year on year; net profit to mother of 59 million yuan, up 47.15% year on year; net profit after deducting net income of 53 million yuan, up 54.48% year on year.

The growth rate of smart toilets is impressive. In 2023, the company's revenue from water tanks and accessories, smart toilets and covers, and same-level drainage system products was 620, 12.66, and 210 million yuan respectively, up -13.65%, 25.90%, and 17.72% year-on-year respectively. Among them, the rapid growth trend of 23Q4's own brands continued. According to Jiuqian data, sales on all 23Q4 online platforms increased 190.23% year on year, and the market share increased to 5.6% in December; flush component products have recovered, and the revenue decline has narrowed, with a slight year-on-year decline; smart toilet OEM declined slightly year on year. In terms of new products, in 24, the company will maintain quality, functional stability and cost performance advantages, develop and innovate functions such as low water pressure or zero water pressure flushing, automatic flushing, foam shield, four-season temperature sensing, plasma sterilization, deodorization, health testing, etc., while reserving emerging categories to integrate and create a full range of product solutions based on the concept of overall bathroom space and the front and back end of the home water system. Front-end products include products related to concealed bathrooms and same-level drainage systems. Back-end products include products related to concealed bathrooms, shower, and rear bathroom cabinets. products.

24Q1 has accelerated brand building, brand awareness and market share continue to increase, and the growth rate of its own brand continues to be beautiful. According to Jiuqian data, in 24Q1, the sales volume of all RRT online platforms increased 60.4% year-on-year, and the market share increased to 5.8% in March;

Independent brands focus on offline channels to accelerate the development of overseas smart toilet foundry markets by channel, 1) e-commerce: on the basis of maintaining core platform advantages, the company will develop new e-commerce platforms in 24; 2) Distribution: In 24, the company will vigorously expand offline stores around dealers related to sanitary ware, building materials, hardware, and home appliances, while optimizing store image management and strengthening publicity and guidance to improve store efficiency, including expanding the proportion of specialty stores, expanding door-to-door share, and deepening logistics services. Among them, the home appliance channel is developing well, and it is expected that the contribution will increase in 24 years.

By region, domestic and overseas revenue in 2023 were 1,649 million yuan and 536 million yuan respectively, up 17.26% and -3.23% year-on-year respectively, accounting for 75.48% and 24.52% of revenue respectively. For overseas markets, in terms of traditional business, the sales of existing homes in the US improved in 24 years, and overseas downstream demand can be expected to recover. According to data from the General Administration of Customs, the year-on-year growth rate of China's leading hardware products has been corrected in 24Q1, and the export value of ceramic sanitary ware accelerated year-on-year growth under a low base; in terms of the smart toilet business, the company has accelerated the expansion of OEM customers, and the volume can be expected in 2024.

23Q4 gross margin increased significantly. In terms of increasing profitability in marketing expenses during the market development phase, the company's gross margin in 2023 was 29.53%, up 4.72 pcts year on year; 23Q4 gross margin was 32.02%, up 9.37 pcts year on year. 23Q4 gross margin increased month-on-month, mainly due to a further increase in the share of independent brands. The company will continue to reduce costs and increase efficiency: 1) continue to release production capacity in intelligent workshops to reduce labor costs; 2) expand scale effects to control procurement costs; 3) integrate and upgrade technology to reduce material costs. 24Q1 gross margin was 30.24%, up 5.01pct year-on-year, mainly due to the continuous increase in the share of independent brands.

In terms of period expenses, the company's expenses rate for the 23-year period was 18.69%, up 5.70pct; sales/management/R&D/finance expenses were 10.88%/4.61%/4.17%/-0.97%, respectively, and +4.59pct/-0.18pct/-0.06pct/+1.34pct, respectively. Among them, the cost rate for the 23Q4 period was 25.88%, up 14.05 pct year on year; the sales/management/R&D/finance expenses ratio was 17.86%/2.04%/5.66%/0.31%, respectively, up 13.61 pct/0.39 pct/0.68 pct/-0.63 pct, respectively. 23Q4 The significant year-on-month increase in sales expenses is mainly due to the company increasing its efforts to develop online and offline markets. Specific expenses include marketing and promotion of its own brands, calculation of year-end remuneration for sales personnel, and after-sales installation services. In 2024, the company will control the cost-sales ratio within a slight year-on-year increase. The cost rate for the 24Q1 period was 19.45%, up 2.57pct; the sales/management/R&D/finance expenses ratio was 11.66%/4.35%/4.26%/-0.82%, respectively, up 5.84pct/-1.67pct/0.07pct/-1.67pct, respectively.

Under the combined influence, the company's net interest rate in '23 was 9.85%, down 0.76pct year on year; 23Q4 net margin was 6.45%, down 3.26pct year on year. The 24Q1 interest rate was 11.06%, down 1.12pct year over year.

Investment advice: Relying on the leading edge of the traditional water-saving flush component industry, the smart toilet business is expected to achieve breakthroughs as the penetration rate of smart bathrooms continues to increase and independent brands accelerate volume. We expect RRT's revenue for 2024-2026 to be 28.64, 36.03, 4.438 billion yuan, up 31.11%, 25.80%, and 23.18%; net profit to mother will be 2.95, 3.72, and 458 million yuan, up 34.88%, 25.99%, and 23.38%. The corresponding PE is 17.0x, 13.5x, 10.9x, and the corresponding PE is 17.0x, 13.5x, and 10.9x, corresponding to a target price of 15.75 yuan, maintaining a buy-A investment rating.

Risk warning: Market competition is increasing risk; risk of large fluctuations in raw material prices; risk of new channels and regional expansion falling short of expectations.