Key points of investment:
The company announced its 2023 results. Revenue was in line with expectations, and profit performance exceeded expectations: 2023 revenue was 15.695 billion yuan, up 11.5% year on year; net profit to mother was 3,870 billion yuan, up 21.4% year on year; net profit after deducting non-net profit of 37.03 yuan, up 27.5% year on year. 23Q4 revenue was 4,088 billion yuan, up 13.3% year on year; net profit to mother was 1,057 billion yuan, +230 million yuan year on year (up 27.8% year on year), after deducting non-net profit of 1,080 million yuan, year on year +288 million yuan (up 36.5% year on year).
The company announced 24Q1 results. Revenue was in line with expectations, and profit performance exceeded expectations: 24Q1 revenue of 3.803 billion yuan, up 14.1% year on year; net profit to mother was 929 million yuan, up 26.3% year on year, after deducting non-net profit of 818 million yuan, up 26.7% year on year.
Traditional electricity connections: The growth rate is steady throughout the year, and price growth is the main driving force. We expect revenue from traditional electrical connections to be around 5% in 2023, and the 24Q1 trend continues. Among them, sockets mainly rely on price increases to promote product structure upgrades around quality and personalization. Special models with high single value, such as rail sockets, have good sales performance, and categories such as wires and electrical accessories will contribute more.
Smart electrical lighting: Channel reforms are intensifying to hedge against external pressure, and revenue growth is expected to accelerate in 2024. In the context of consumption downgrading, cost performance is better than product sales. The company continues to release channel reform dividends in the sinking market and increase its market share. In 2024, the company will focus on promoting the launch of flagship stores on the basis of previous centralized stores. Flagship stores are more efficient, which is expected to drive revenue acceleration in various categories. See for details:
1) Wall Kai: Revenue is expected to increase in double digits in 2023. The 23Q4 revenue acceleration is mainly due to Wall Open channel promotion, channel inventory removal, and the 24Q1 growth rate continues, mainly due to the landing of specialty stores to increase single store output; 2) Traditional LED: Revenue is expected to increase 15% + in 2023. Among them, the lighting business fully shares the dividends of channel reform, and the basic light source business contributes more to commercial product development. 3) No headlights: The revenue in 2023 is expected to be double digits high compared to the year, mainly contributed by the Bull brand; Mu Guang will focus on refining the bottom level in 2023. Dealers have their own designer resources, and they have sufficient confidence in the company. After the single-store model runs through, it is expected to expand!
New energy: product expansion, channel expansion, continuous revenue growth. Revenue from new energy sources in 2023 was 380 million yuan, 148.6% year-on-year.
The company established an independent division in 2023 to integrate production, supply and marketing, and accelerate development. Rapid channel expansion, B-side volume, 17,000 stores and 1,500 operator customers at the end of 2023. The expansion trend continued in 24 years. SKU was expanded, energy storage services were added, and profit margins were optimized by self-production of core components. The gross margin reached 34% in 2023, and can continue to increase in the future.
Under the trend of brands going overseas, internationalization is expected to become another growth pole in the medium to long term. Starting in 2023, the company will raise its internationalization strategy to the company's strategic level; specific targets: 1) Southeast Asia and other developing countries: Southeast Asia and other places still have the dividends of national home appliances, and traditional core categories have strong brand and product cost performance advantages in developing countries; successful trial sales in Vietnam and other places are expected to replicate the domestic distribution channel strategy. 2) Developed countries such as Europe and America: Mainly in the new energy category, covering products such as charging and energy storage, on the channel side, cooperation with local installers is expected to open up new growth points!
Internal operation quality optimization continued to be implemented on the reporting side, and gross margin improved dramatically. The gross margin for 2023/24Q1 was 43.2%/42.2%, +5.2 pct/5.0 pct year over year, mainly due to the relatively low price of raw materials, the effect of lean management, and product structure upgrades. The scale of expenditure was increased. Sales/management/R&D/finance expenses rates in 2023 were 6.8%/4.0%/4.3%/-0.7%, respectively, +1.1/+0.1/+0.1pct; 24Q1 sales/management/R&D/finance rates were 7.4%/4.2%/4.5%/-0.7%, respectively, +1.1/+0.7/-0.1pct.
The company is a benchmark enterprise in the field of civil electricians. The traditional core category has deep moats, and channel reform dividends have been released; it is expected that it will continue to regain its leading position on many new tracks with no main lights and new energy charging. Considering that raw material prices in 2024 are in a cycle of price increase, we slightly lowered our 2024-2025 profit forecast to 44.63/5.271 billion yuan (previous values were 4.726/5.766 billion yuan, respectively), and added a profit forecast of 6.278 billion yuan, +15.3%/+18.1%/+19.1% year-on-year in 2024-2026. The PE corresponding to the current market value is 26/22/19 times. The average PE since the company went public in 2020 is 36 times, and still maintains a “buy” rating!
Risk warning: Competition for new businesses intensifies; raw material prices fluctuate, affecting profit margins.