Incidents:
The company released the 2023 Annual Report and the 2024 First Quarter Report. The full year of 2023 achieved operating income of 22.782 billion yuan, up 1.35% year on year, achieving net profit of 3,036 billion yuan, up 12.92% year on year, net profit after deducting non-return on mother, up 5.91% year on year; net cash flow from operating activities of 4.878 billion yuan, up 102.43% year on year; basic income per share of 4.98 yuan, up 12.93% year on year; weighted average return on net assets of 17.55%, +0.18 pct year on year; proposed to distribute a discovery dividend to all shareholders for every 10 shares 2.76 yuan (tax included), dividend payment rate of 55.08%, total dividend of 1,672 billion yuan. Based on the closing price of 69.03 yuan/share on May 15, the dividend rate reached 4%.
In the first quarter of 2024, the company achieved operating income of 3.621 billion yuan, a year-on-year increase of 1.43%, net profit to mother of 218 million yuan, an increase of 43% year-on-year, after deducting net profit of 143 million yuan, an increase of 10.03% over the previous year.
Investment highlights:
Promote the “big home” strategy, comprehensively control costs and improve efficiency, and increase both revenue and profit.
The company continued to advance the “Big Home” strategy, restructured the marketing management system, and comprehensively promoted product delivery and service quality reforms. Revenue increased 1.35% year-on-year in 2023. The company fully implemented cost control and efficiency. Through measures such as improving the advantages of large-scale procurement to improve supply chain management efficiency, improving production efficiency through organizational optimization, delivery and quality changes, and automated production line upgrades, strengthening cost and budget control, and increasing the weight ratio of profit index assessments, etc., net profit to mother increased 12.92% year-on-year in 2023, achieving double-digit growth.
Revenue in the bathroom and wooden door categories increased, and assembly, direct management, overseas and engineering channels contributed increased revenue.
By product, cabinets/ wardrobes and accessories/ bathroom/ wooden doors achieved revenue of 70.31/119.49/11.28/1.378 billion yuan, respectively. The revenue increase was mainly due to the increase in sales scale of accessories brought about by the company's active development of assembly business, as well as the increase in revenue in the bathroom and wooden door categories driven by the large household strategy. In 2023, sales volume of sanitary ware and wooden doors was nearly 700,000 units and 1.15 million yuan, respectively, compared with +11.41%, + 4.34% The slight year-on-year decline in revenue from the company's main products, wardrobes and accessories, was mainly due to a 27% year-on-year decline in revenue due to supply chain optimization and phased distribution policy adjustments, while the company's homemade wardrobe achieved operating revenue of nearly 10 billion yuan, an increase of nearly 6% over the previous year.
By sales model, direct-run stores/dealerships/bulk businesses achieved revenue of 829/175.75/3,586 million yuan respectively, compared with +17.44%/-0.04%/+2.61%, respectively. The revenue increase was mainly due to revenue growth from assembly, direct management, overseas and engineering channels. Among them, the direct management division contributed 120 million yuan in revenue as a pilot project for the large household model, and the overseas division achieved revenue of 320 million yuan, an increase of 46.5% over the previous year.
Develop and actively implement the large household business model, and support the completion of marketing organization reforms.
The large home business model caters to consumers' easy one-stop decoration and home furnishing needs, can continuously obtain traffic, and is in line with the healthy business logic of increasing customer order value and diluting single customer drainage costs. It is expected to evolve into the main form of consumption of household products in the future. Oupai Home Furnishing is the founder and active practitioner of the big home business model. As early as 2014, it proposed the strategic direction of “big home”, and spent 10 years continuously building systems for its capabilities in various aspects such as informatization, manufacturing, supply chain, distribution services, and brands. By the end of 2023, there were about 800 cities applying to open Oupai retail stores, and there were about 600 cities where major retail stores were already operating normally. In order to further match the organizational form with the strategic direction of the household, the company initiated a comprehensive marketing organization reform, and adjusted the original marketing division divided by category into three major marketing divisions divided according to regions to carry out unified management of all categories and channels. The company's ability to support the implementation of the large household strategy is becoming more and more mature, and it will continue to promote the implementation of the large household strategy in the future.
Low raw material prices combined with comprehensive cost control and efficiency improvements, and profitability continued to grow.
In 2023, the company's gross profit margin was 34.16%, +2.55pct year on year. Mainly due to the low price of raw materials, the company raised the gross margin level through measures such as reducing procurement costs; the net profit margin was 13.28%, +1.35pct year on year, mainly due to overall cost control and efficiency improvement. In terms of period expenses, the company's expenses rate for the 2023 period was 18.44%, +1.13pct. Among them, sales, management, R&D, and finance expenses were 8.70%, 6.15%, 4.94%, and -1.35%, respectively, +1.23, +0.21, -0.06, and -0.25pct, respectively. Sales expenses and management expenses increased.
The 2024Q1 company's gross profit margin was 29.98%, compared to +3.3 pct. It mainly showed the advantages in the scale of raw material procurement and the results of continuous cost reduction measures. In 2024, the company introduced a more flexible and competitive sales strategy to benefit dealers and end consumers. At the same time, the company will improve management efficiency, carry out refined process management, control costs and reduce fees, and hedge against changes in the external environment and fluctuations in profit margins in multiple dimensions.
Continued dividends positively return shareholders, and share repurchases demonstrate confidence in development.
In 2023, the company plans to distribute a cash dividend of 2.76 yuan (tax included) to all shareholders, a cash dividend of 1,672 billion yuan (tax included), and a dividend payment rate of 55.08%. Based on the closing price of 69.03 yuan/share on May 15, the company has always firmly established a sense of shareholders' return, and implemented cash dividends every year since listing. Combined with the proposed dividend calculation, the company's cumulative cash dividend will exceed 5.7 billion yuan.
Based on confidence in the company's future continuous development, the company implemented a two-phase share repurchase plan. The total amount of repurchase capital already implemented by the company in 2023 was 312 million yuan. The total amount of cash to be allocated in 2023+the repurchase amount for 2023 is 1.984 billion yuan, accounting for 65% of the company's net profit returned to mother in 2023.
First coverage, giving the company a “buy” rating.
Demand for refurbishment of stock housing is expected to provide new growth for the home furnishing industry. According to data from the 7th Census, as of 2020, households living in homes within 10 years/11-20 years/21-30 years/31-40/41-50 years/50 years/50 years or more accounted for 36.7%/32.03%/19.65%/8.63%/1.91%/1.08%, respectively. Recently, real estate optimization policies have continued to be released and implemented. Furniture export data has maintained a growing trend. The valuation of the home sector is still at a historically low level, and sector valuations are expected to increase in the future. At the same time, in the future, the household sales model will evolve into the mainstream form of the industry, placing higher demands on the capabilities of enterprises in various aspects such as informatization, manufacturing, supply chain, distribution services, and brands, and the market share of leading enterprises is expected to increase further. As a leader in the custom home furnishing industry, Oupai Home Furnishing has strong advantages in design and development, brands, services, channels, etc., and is firmly implementing the strategic plan of home furnishings. It is expected to benefit from industry trends in the future.
First coverage, giving the company a “buy” rating. It is estimated that in 2024, 2025, and 2026, the company can achieve net profit of 3.35 billion yuan, 3.472 billion yuan, and 3,775 billion yuan, respectively. The corresponding EPS is 5.31 yuan, 5.70 yuan, and 6.20 yuan, respectively. Based on the closing price of 69.03 yuan/share on May 15, the corresponding PE is 13.00 times, 12.11 times, and 11.14 times, respectively.
Risk warning: risk of market demand falling short of expectations; risk of dealer management; risk of large fluctuations in raw material prices; risk of increased industry competition.