On the evening of April 26, 2024, Huabao Xinneng released its 2023 annual report and 2024 quarterly report.

The company released its 2023 annual report. The company achieved annual revenue of 2.31 billion yuan, a year-on-year decrease of 27.8%, realized net profit of 170 million yuan, and realized net profit deducted from non-return to mother of 260 million yuan, turning a year-on-year loss. Among them, Q4 achieved operating income of 730 million yuan, a year-on-year decrease of 24.6%, and realized net profit to mother of 110 million yuan.

The company does not plan to pay dividends this time.

The inflection point of operations for the first quarter has been reached. In the first quarter, the company achieved operating income of 580 million yuan, a year-on-year increase of 29.9%, achieved net profit of 29 million yuan, and realized net profit deducted from non-mother of 13.29 million yuan, reversing losses over the previous year.

By region: 1) North America achieved revenue of 1.32 billion yuan in 2023, down 11.4% year on year, mainly affected by factors such as increased competition in the industry. Through online DTC+ tripartite e-commerce + offline trinity channel expansion, and high-capacity mobile energy storage and home storage products expansion, the US market revenue increased 37% year on year in the first quarter, and business performance improved rapidly; 2) Europe achieved revenue of 230 million yuan in 2023, down 66.9% year on year. Affected by the normalization of the energy crisis and the elimination of channel inventories, the overall European market was under pressure in 2023 However, as inventories return to normal levels, we estimate that the company's European business will gradually improve in 2024; 3) Asia (excluding China) achieved revenue of 550 million yuan in 2023, down 33.6% year on year. The company made a rapid breakthrough in the Japanese market and has now entered core offline channels such as Bic Camera and Yodobashi Camera, driving rapid brand awareness and sales growth. The company's revenue in the Japanese market increased 75% year on year in the first quarter; 4) Other overseas regions achieved revenue of 12.42 million yuan in 2023, year over year 99.9% increase; 5) China achieved revenue of 200 million yuan in 2023, a year-on-year increase of 7.3%.

On the profit side, the gross margin of the 2023Q4/2024q1 company changed year-on-year by -2.1pct/ +4.8pct to 39.0%/46.5%, respectively. Profitability improved rapidly after the removal of high-priced inventory in the previous period was completed. On the expense side, the company's expense ratio for the first quarter was 39.1% (YoY-14.4pct). Among them, sales/management/ R&D/ finance rates changed year-on-year by -6.4pct/ -4.5pct/ -2.3pct/ -1.2pct, respectively. Revenue growth effectively diluted the expense ratio, while interest revenue growth improved the financial expense ratio. In addition, asset impairment losses were affected by an increase of 23.8 million yuan over the previous year due to the increase in inventory calculation, which negatively affected the operating profit margin by about 4.2 pct; income from cash investment increased by 11.78 million yuan over the same period last year, which positively affected the operating profit margin by 1.7 pct. Taken together, the company's net interest rate for the first quarter was 5.0%, a significant year-on-year improvement of 11.6pct.

Profit forecasting and investment ratings. Considering the moderate recovery rate of industry demand and the early development of the company's household storage business, we lowered the company's 2024-2025 forecast. The company's 2024-2026 revenue is expected to be 3.20 billion yuan, 3.67 billion yuan and 4.42 billion yuan respectively, up 30%, 22%, and 20% year-on-year respectively. The estimated net profit to mother is 160 million yuan, 260 million yuan and 330 million yuan respectively. The corresponding PE is 48.1 times and 29.9 million yuan, respectively. Double and 23.4 times, maintaining the “increase in wealth” investment rating.

Risk warning: Market demand falls short of expectations, industry competition intensifies, and household storage business progress falls short of expectations.