Depreciation and expense investment dragged down annual performance, and government subsidy contributions increased by 24Q1. In 2023, the company achieved revenue of 12.48 billion yuan, +10.0% YoY, net profit attributable to mother of 174 million yuan, 47.3% YoY net profit, -80.1% YoY, EPS 0.33 yuan/share, and plans to distribute 10 to 1.6 yuan (tax included), of which Q4 revenue was 3.07 billion yuan, -9.6% YoY, net profit - 381 million yuan, in the same period last year. Performance pressure was mainly due to impairment losses and increased personnel investment and marketing expenses. 2023 Depreciation of various types of assets was estimated at $510 million, of which credit impairment amounted to $360 million. 2024Q1 revenue was 2.07 billion yuan, +0.6% year over year, net profit to mother was 47 million yuan, +78.2% year over year, net profit after deduction of non-return mother was -77 million yuan, compared to the same period last year - 43 million yuan, mainly due to a year-on-year increase of 665.4 billion yuan in government subsidies.
Channel structure adjustment and optimization, 24Q1 retail sales grew at a high year-on-year rate. By channel, distribution/direct sales revenue in 2023 was 101.7/2.06 billion yuan, +18.3%/-10.9% year-on-year, accounting for 83.1%/16.9%. The layout of retail and small B businesses was accelerated, and the share of distribution increased further. By product, the revenue of home decoration wall paint/engineering wall paint was +2.6%/+9.5%, sales volume was +3.3%/+22.9%, and the steady growth of home decoration paint mainly benefited from increased investment in new channels and promotion; revenue from base materials/adhesive/waterproof membrane was +41.0%/+29.5%/+26.9%, mainly due to increased market development. At the same time, the company actively adjusted construction business, and decoration construction revenue was -39.4%. 2024Q1 home decoration wall paint/engineering wall paint/base material/waterproof membrane/ adhesive revenue +13.0%/-15.5%/+20.5%/+42.8%/+7.1% year over year. Retail sales grew rapidly year on year. Affected by the late start of overall construction, the project declined year on year.
The decline in raw materials contributed to an increase in gross margin, and investment expansion led to a year-on-year increase in cost rates. The overall gross profit margin in 2023 was 31.5%, +2.6pp year on year, benefiting from the downward contribution of raw material prices, the gross margin increased 26.2% year over year, and the cost ratio for the period was +1.8/+0.7/+0.2pp, respectively. The R&D expense ratio remained flat year on year. The increase in sales expenses was mainly due to increased personnel investment and marketing. As of the end of 2023, employees were +12.3% year over year, of which sales were +20.7% year over year.
Operating cash flow increased dramatically, and the quality of operations continued to improve. In 2023, the company achieved a net operating cash flow of 1.41 billion yuan, 47.3% year-on-year, of which Q4 had a net inflow of 850 million yuan in a single quarter, +94.8% year-on-year. As of the end of 2023, accounts receivable and notes amounted to 3.59 billion yuan, a year-on-year decrease of 760 million yuan. The balance ratio was 80.88%, -1.13pp year on year, and the debt structure continued to improve.
Risk warning: Real estate investment recovery falls short of expectations; channel product expansion falls short of expectations; repayments fall short of expectations. Investment suggestions: impairment charges release risks, channel potential is expected to be further released, maintain “buying” companies' contrarian investment, actively optimize the channel structure, and are optimistic that the C-side and small B-side will gain further strength, and impairment accounting will release risks, and business quality is expected to continue to improve. EPS is expected to be 1.30/1.95/2.46 yuan/share in 24-26, respectively, and the corresponding PE is 28.1/18.8/14.9x, maintaining a “buy” rating.