Event: 2023 Annual Report: 2023 revenue of 22.78 billion yuan, +1.4% year over year; net profit to mother of 3.04 billion yuan, +12.9% year over year. Among them, Q4 revenue was 6.22 billion yuan, +0.1% year-on-year; net profit to mother was 730 million yuan, +4.0% year-on-year. The company plans to distribute a cash dividend of 27.6 yuan for every 10 shares. 2024 Quarterly Report: 2024Q1 revenue of 3.62 billion yuan, +1.4% year on year; net profit to mother of 220 million yuan, +43.0% year over year.
By category, the big household strategy is driving a steady increase in overall revenue. In 2023, cabinets, wardrobes and accessories, bathroom and wooden doors achieved revenue of 7.03 billion yuan, 11.95 billion yuan, 1.13 billion yuan, and 1.38 billion yuan, respectively, -2.0%, -1.6%, +9.0%, and +2.4% year-on-year in Q1 in 2024. The company's mature categories of cabinets and wardrobes are under slight pressure, while categories such as bathroom and wooden doors have maintained a high growth rate, benefiting from an increase in the correlation rate, and the household strategy has helped stabilize overall revenue. In 2023, the company will adjust the marketing division divided by category to carry out unified management of all categories and channels according to regional division to match the strategic direction of the household in terms of organizational form. The home strategy is in line with industry trends, the company layout is leading, and organizational changes will further strengthen its leading edge. We are optimistic that the company can continue to lead the development of the industry.
By channel, retail sales are under slight pressure, and bulk businesses have benefited from completion and growth. The retail business (direct operation+distribution), bulk and overseas business achieved revenue of 18.40 billion yuan, 3.59 billion yuan, and 320 million yuan respectively in 2023, +0.6%, +2.6%, and +46.5% year-on-year. The year-on-year growth rates in Q1 2024 were -2.7%, +18.8%, and +45.6%.
The retail business remained steady in '23, and declined in 24Q1. The direct business is growing at a high rate. We speculate that as the company explores operating models through the opening of direct home stores, it is expected that it will continue to empower dealers in the future. As the negative impact of organizational adjustments weakens, the large household model is expected to help revenue return to growth. Meanwhile, the bulk business benefited from the growth in completed real estate and maintained a high growth rate. Furthermore, the company is actively developing overseas business, and the growth rate is high.
Profitability increased significantly year over year and is expected to be maintained. The company's 2023 gross profit margin was 34.2%, +2.6 pct year over year, and 24Q1 +3.3 pct year over year. Gross margin increased significantly, mainly benefiting from falling raw material prices and improved operating efficiency. Sales and management expense rates in 2023 were +1.2 and +0.2pct, respectively; 24Q1 was +1.8 and -0.5pct, respectively. The increase in sales expenses is mainly due to increased advertising and marketing campaigns and pressure on the revenue side.
Taken together, the net interest rate in 2023 was 13.9%, +1.4pct year over year, and 24Q1 net interest rate was +1.8pct year over year. Profitability benefited from a recovery in gross margin. The company continues to emphasize cost reduction and efficiency. The ability to control past expenses is outstanding. We are optimistic that profitability will remain stable in the future.
Profit forecasting and investment ratings: The company has accumulated industry-leading channel operation experience and dealer resources, and is aggressive in business. The company once again optimized its organizational structure in '23 and made every effort to develop the household business. As the negative impact dissipates, the company is expected to achieve steady growth in multiple dimensions by expanding categories, channels, and brands. The company's net profit for 2024-2026 is estimated to be RMB 32.2, 35.2, and 3.95 billion yuan, respectively, and EPS is 5.3, 5.8, and 6.5 yuan. Currently, the corresponding PE price is 12.5, 11.4, and 10.1 times, respectively. The current valuation is at a historically low level, maintaining the “recommended” rating.
Risk warning: Real estate sales declined more than expected; household consumption fell short of expectations; raw material prices rose.