Key points of investment

Songlin Technology Announces 23A and 24Q1 Results

Revenue of 2,983 million yuan (-6.2% YoY) was achieved in '23, net profit of 352 million yuan (YoY +35.0%), of which 23Q4 achieved revenue of 790 million yuan (+13.7% YoY), net profit to mother of 48 million yuan (+49.7% YoY), and net profit to mother of 0.68 million yuan (YoY +127.8%). 24Q1 achieved revenue of 681 million yuan (+12.6% YoY), net profit attributable to mother of 111 million yuan (+154.7% YoY), or 102 million yuan after deduction (+156.9% YoY).

Kitchen and bathroom exports have been repaired, and beauty and health have increased. Songlin's revenue from divesting kitchen and bathroom health in 23 years was 2,615 billion yuan (-7.5% year over year), of which 23H1/23H2 revenue was -23.6%/+12.7% year over year. 1) Industry level: The export of sanitary ware is over, and demand recovery is obvious. 23Q4/24Q1 sanitary ceramics export value is -31.9%/+27.2%, faucet ratio -3.0%/+7.9%, rain shower equivalent ratio -13.2%/+38.4%. We expect subsequent demand to benefit from improved US real estate demand and the implementation of the Federal Reserve's interest rate cut expectations; 2) At the company level: the company pioneered the IDM model, kitchen and bathroom products are higher than high-end, and gross margin is expected. We expect the company to directly benefit from export repair flexibility, while actively expanding new categories such as faucets and showers. Promotion, in addition, the company The entire line of Bejet was acquired in 23Q4, and smart toilets are expected to expand after the organizational structure and product customer optimization and upgrade.

Beauty and Health's revenue for 23 years was 259 million yuan (+79.19% YoY). 1) Industry level: The beauty and personal care circuit is booming. The global online beauty and personal care products market grew 18.8% in 23-30, and the global beauty device market grew 16% in 23-30. 2) Company level: Driven by product innovation, the company continues to launch segmented products such as beauty showers, beauty devices, dental irrigators, hair care devices, and smart skin meters, which is expected to continue to be released.

The Song Lin family's revenue for 23 years was 0.32 million yuan (-73% YoY). The business lost money for many years. The company was divested in 23Q3, and the business focused on smart health.

Song Lin Family's divestment reduced losses, business structure optimization, and profit optimization. The gross margin for 23 years was 35.0% (+4.2pct year over year), mainly benefiting from business structure optimization (low gross profit Songlin Family business divestment, increased share of high-margin beauty and health business) + exchange rate optimization+ lower raw material prices. Looking at the breakdown, the gross margin of the 23-year kitchen and health health/beauty health/Song Lin family was 33.4%/58.3%/16.7%, respectively, +2.73/+0.6pct. The gross margin for 23Q4/24Q1 was 34.9%/35.5%, respectively.

The net interest rate for the year 23 was 11.8% (+3.6pct year over year), of which the net interest rate for 23Q4 was 6.14%, mainly due to the increase in the cost of the wholly-owned acquisition of Bejet and the reduction in tax deductions after Song Lin's business was divested. The net interest rate for 23Q4 without return to mother was 8.6%. The net interest rate for 24Q1 was 16.4% (+9.1% year over year), mainly due to the increase in the net interest rate to the mother after the wholly-owned acquisition of Beijet and the divestment of the Song Lin family to reduce losses.

We believe that after divesting Song Lin's family, the company's profits were clearly optimized for 24 years. At the same time, it benefited from an increase in the share of beauty and health in the medium to long term, and there is room for continuous optimization of profits.

Profit forecasting and valuation

We are optimistic about the company's short-term export repair flexibility, continue to increase market share and expand high-margin new categories based on the IDM model in the medium to long term. We expect the company to achieve operating income of 36.42/43.48/5.143 billion yuan in 2024-2026, up 22.1%/19.4%/18.3% year on year. We expect the company to achieve net profit of 4.86/5.96/711 billion yuan in 2024-2026, up 37.8%/22.7%/19.3% year over year, corresponding to the current market capitalization PE of 16.04/13.07/10.95, maintaining the “gain” rating.

Risk warning

Export demand fluctuates; the Fed's interest rate cuts fall short of expectations; demand transmission falls short of expectations; changes in raw material costs and exchange rates; fluctuations in orders from major customers; and the release of new smart health products falls short of expectations, etc.