Matters:

The company released the 2023 annual report and the first quarter report of 2024. In 2023, the company achieved revenue of 7.80 billion yuan/ +7.2%; net profit due to mother of 9.2 million/ +17.8%; net profit after deducting non-mother 850 million/ +34.2%. In 23Q4, the company achieved revenue of 2.28 billion/+10.5%, net profit of 270 million/ -4.6%, net profit of non-return to mother 280 million/ +13.0%. In 24Q1, the company achieved revenue of 1.58 billion/ +5.3%, net profit of 120 million/ +23.5%, net profit of non-return to mother 100 million/ +36.4%.

Commentary:

The lighting leader shows resilience, and the channel network is constantly being optimized. According to CSA research data, China's general lighting market in 2023 was about 246.6 billion yuan, down 0.1% year on year. However, it is significantly narrower than the 22-year decline (-9.7%), and market demand is gradually picking up. With omni-channel coverage and scale advantages, the company achieved steady operation, with revenue of +7.2% in 23 years to 7.80 billion yuan. By business, 1) Home furnishing business: Both retail and distribution achieved good growth. Among them, retail channels continued to optimize the image of terminal stores and product category layout, focusing on building national core benchmark stores, empowering global customer acquisition and standardized operation capabilities, and achieving rapid revenue growth; while distribution channels also benefited from increased network coverage and single-point output, developing more than 110,000 outlets at the end of 2023. 2) Commercial license business: The company focuses on building benchmark projects, continues to invest in key industry segments such as commercial chains, office, industry, etc., and further increases its market share. 3) Online business:

The company is speeding up the completion of high-end product lines, actively promoting the integrated development of online+offline, and driving a further increase in online gross margin. 4) Overseas business: The company focused on key regions, improved omni-channel coverage, continued to develop industrial and commercial lighting businesses, and achieved export sales revenue of 740 million yuan throughout the year, +6.3% over the same period last year.

Platform-based reforms have achieved remarkable results, and marketing investment has increased. In '23/24Q1, the company achieved a gross profit margin of 40.3%/38.5%, compared with +4.6/+1.6pcts, or cost reduction and efficiency mainly brought about by improved raw material costs and platformization reforms. On the cost side, 1) Achieved a sales/management/finance expense ratio of 18.5%/4.1%/-1.4% in 23, compared to +2.6/-0.3/-0.9pcts. The increase in sales expenses was mainly due to the company speeding up offline channel expansion and increasing marketing investment. 2) 24Q1 achieved a sales/management/finance expense ratio of 19.1%/4.9%/-0.5%, +1.4/+1.1/-0.3pcts year-on-year. Taken together, the company achieved a net profit margin of 11.9%/+7.6% in '23/24Q1, respectively, +1.1/+1.1pcts compared to the previous year.

The dividend ratio increased, and cash flow performance was steady. In 2023, the company plans to pay a cash dividend of 8.5 yuan for every 10 shares, corresponding to a dividend rate of 67.7%, +20.2pcts year over year. The dividend rate calculated on May 8 is 4.5%.

In terms of cash flow, the company achieved net operating cash flow of 1.67 billion yuan in '23, with abundant cash flow.

Investment advice: The company is a leader in the lighting industry. Platform-based construction promotes cost reduction and efficiency, and is expected to increase market share through omnichannel efforts in the future. We expect net profit to be 10.64/12.16/1,353 billion yuan for 24/25/26, corresponding to PE 13/12/10X. Referring to the absolute valuation method, a target price of 23 yuan/share was given, and the “strong recommendation” rating was maintained.

Risk warning: Market competition intensifies; technology upgrades fall short of expectations, etc.