Performance summary: The company released its 2023 annual report and 2024 quarterly report. In 2023, the company achieved revenue of 8.68 billion yuan, +10.7% year on year; realized net profit of 430 million yuan, +80.5% year on year; realized deduction of non-net profit of 380 million yuan, +84.2% year on year. Looking at a single quarter, 2023Q4 achieved revenue of 2.61 billion yuan, +24.4% year on year; realized net profit of 40 million yuan; and realized net profit of 3.83 million yuan after deduction. In 2024Q1, the company achieved revenue of 1.76 billion yuan, +20% year on year; realized net profit of 70 million yuan, +20.2% year over year; realized net profit of 70 million yuan after deduction, +48.6% year on year. 24Q1 revenue and profit achieved relatively rapid growth, demonstrating business resilience.

Gross margin continued to grow, and cash flow improved year over year. In 2023, the company's overall gross margin was 34.4%, +2pp year on year; 2023Q4 gross margin was 34.7%, +5.2 pp year on year, and gross margin grew rapidly. By product, the gross margin of the company's mattress/soft beds and ancillary products/sofas/wooden furniture was 38.3% (+1.5pp)/25.6% (+0.3pp)/1.1% (+2.4pp), respectively. By sales model, the company's dealership, bulk business, and online sales achieved gross profit margins of 45.1% (+1.7pp)/15.1% (+2.9pp)/44.4% (+3.4pp), respectively. In terms of cost ratio, the company's total expense ratio was 27.3%, -0.3 pp year on year, and the cost ratio was relatively stable. Among them, the sales expense ratio was 20.3%, +0.7 pp year on year, mainly due to increased e-commerce marketing investment; management expense ratio was 4.9%, -0.3 pp year on year; financial expense ratio was 0.1%, -0.3 pp year on year; R&D expenses rate was 2.1%, -0.4 pp year on year. Taken together, the company's net interest rate was 4.9%, +1.9pp year on year, and profitability rebounded. The gross margin of the 2024Q1 company was 33.5%, +1.1 pp year on year; the total cost ratio was 28.1%, of which sales/management/ financial/ R&D expenses ratio was -0.8 pp/ -0.1 pp/ -1 pp/ +0.2 pp year on year, respectively; in addition, the company's fair value change loss was 9.63 million yuan, a year-on-year decrease of 18.7 million; net interest rate was 4.2%, the same year on year.

Offline retail channels are growing steadily, and bulk and e-commerce are performing well. By sales model, in 2023, the company's dealership/bulk business/online sales achieved revenue of 3.69 billion yuan (+2%)/3.09 billion yuan (+16.6%)/1.80 billion yuan (+22.0%), accounting for 43.0% (-3.1 pp)/36.0% (+2.2pp)/21.0% (+2.1pp) of revenue, respectively. The company's offline franchisee system is improving. Judging from the store opening situation, as of the end of 2023, the total number of the company's stores was 5,653. Among them, the number of Xilinmen specialty stores, Ximian specialty stores, and M&D specialty stores (including Xia Tu) stores were 3,551, 1,612, and 490, respectively. The net opening of stores was 271, 190, and -81, respectively. The expansion of Xilinmen and Ximian brand stores was steady, and the channels were further sinking. In terms of online channels, the company is steadily advancing on platforms such as Tmall and Jingdong. At the same time, it is focusing on new platforms such as Douyin to promote content marketing and open up new growth space. In terms of export sales, the company seizes the opportunity to accelerate the development of cross-border e-commerce business, thoroughly dismantle the company's goals through a hierarchical customer classification strategy, and adopt precise measures to achieve steady revenue and profit growth.

The core product mattress continued to grow rapidly, and sofa revenue was temporarily under pressure. By product, the company achieved revenue of 5.02 billion yuan (+23.9%)/2.66 billion yuan (-1.1%)/770 million yuan (-14.6%)/130 million yuan (+27.9%) in 2023, accounting for 57.8% (+6.2pp)/30.7% (-3.6pp)/8.9% (-2.6pp)/1.5% (+0.2pp), respectively. The product structure continues to be optimized. The company is deeply involved in the sleep circuit, continuously improving the competitiveness of mattress products, further highlighting the central position of the mattress category, and revenue continues to grow rapidly; due to M&D sofa sales falling short of expectations, sofa product revenue declined.

Profit forecasting and investment advice. EPS is expected to be 1.39 yuan, 1.61 yuan, and 1.83 yuan respectively in 2024-2026, and the corresponding PE is 14 times, 12 times, and 10 times, respectively. Considering the rapid growth of the company's e-commerce channel, the channel has been steadily expanding, maintaining a “buy” rating.

Risk warning: the risk of raw material prices or large fluctuations, the risk of increased industry competition, the risk of international trade friction, and the risk of channel expansion falling short of expectations.