Incident: The company disclosed the 2023 annual report and the 2024 quarterly report: the company's revenue in 2023 was about 20.014 billion yuan, -2.21% year over year; net profit to mother was 3.2 billion yuan, -0.86% year over year. Revenue for the first quarter of 2024 was about 4.765 billion yuan, +30.15% year on year; net profit to mother was 787 million yuan, +63.67% year over year.
The company's revenue in 2023 showed resilience under price supplementation. There was an upward inflection point in the fourth quarter and exceeded expectations in the first quarter of this year. Overall revenue in 2023 showed some resilience under pressure from the industry. Looking at volume and price breakdown, the company sold 190 million pairs of sneakers in '23, -13.85%. The average unit price was in US dollars, up 8.71% year on year. The increase in prices made up for the decline in sales. On a quarterly basis, 23Q1-24Q1 was high and low in the first five quarters. Revenue growth rates were -11.23%, -3.87%, -6.92%, +11.74%, and +30.15% from quarter to quarter. 23Q4 was a clear upward inflection point. We expect orders to continue to grow throughout the year 2024 as major customer inventories normalize. On the customer side, the top five customers accounted for 82.37% of revenue in the first half of 2023, down 8.9 percentage points from previous years. On the one hand, the absolute value of orders from the top five customers fell 11.74% under inventory pressure, and on the other hand, orders from major new customers grew rapidly, leading to a decline in the share of the top five customers. The company continues to strengthen the cohesiveness of cooperation with major customers and continues to expand new customers to jointly guarantee the high utilization of the company's production capacity.
The company's profit margin showed resilience in 2023. The company's cost control ability was excellent, and the 24Q1 profit margin reached a record high. Gross margin in 2023 was 25.59%, a year-on-year decrease of 0.27%. Mainly in Q1 2023, gross margin was affected due to a sharp decline in orders. Subsequently, with the recovery of orders and capacity utilization, and proper cost control measures, gross margin gradually recovered. Operating profit margin declined in Q4 in '23, but gross margin still increased slightly from month to month. Changes in exchange gains and losses due to exchange rate fluctuations are the main cause of changes in net profit margins.
Orders improved in 24Q1, and capacity utilization increased. The gross profit margin for the single quarter was 28.37% and the net profit margin was 16.53%, the highest profit margin in the first quarter in the past five years. The company's overall stability on the profit margin side shows the company's excellent cost control ability. Cost control is also the core ability of the manufacturing process.
Production capacity construction is progressing steadily, and customers are exploring potential to increase procurement share. In terms of production capacity, in 2023, the company's capital expenditure was RMB 1,155 billion. In the first half of 2024, the company expects that two new factories in Vietnam (a finished shoe factory and a factory for semi-finished products such as upper and sole) and a new factory in Indonesia (finished shoe factory) will gradually be put into operation. As a large-scale sneaker manufacturer, the company has advantages in capacity expansion, product development, etc., to meet the comprehensive needs of sports brand operators in all aspects.
The 24-year outlook is optimistic. At the industry level, major sports brands have gone smoothly, and stock replacement orders for suppliers have been normalized, and the entire industry has maintained a high level of prosperity. At the company level, Huali has outstanding advantages as a core supplier, and is optimistic that the company's performance will return to a higher growth rate under the combined effects of the release of production capacity and the increase in orders from new customers.
Investment advice: The company's net profit for 2024-2026 is expected to be RMB 38.37, 43.79, and RMB 5.084 billion, respectively, with growth rates of 19.89%, 14.14%, and 16.09% respectively. Currently, PE corresponding to the stock price is 21.51, 18.85, and 16.24 times, respectively. Maintain a “recommended” rating for the company based on the company's industry position and order prospects.
Risk warning: Customer inventory control affects the order pace. Prices of raw materials have risen above expectations, and sea freight prices have risen above expectations.