Incident: The company's main revenue in 2023 was 5.315 billion yuan, a slight increase of 0.03% year on year, and net profit to mother was 572 million yuan, a slight decrease of 1.44% year on year. In the first quarter of 2024, the main revenue for the single quarter was 1,088 billion yuan, down 12.26% year on year, and net profit to mother was 89.48 million yuan, down 49.47% year on year.
The main home textile industry performed steadily, and the furniture business was temporarily hampered. The company owns two home textile brands, Rollei and LOVO. The home textile business accounted for 80% of the company's revenue in 2023, and the company also has a high-end Lexington American furniture brand. In 2023, the company's home textile business revenue was about 4.267 billion yuan, a slight increase of 3.37% year on year; the company's home furnishing business revenue was 1,048 billion yuan, -11.61% year-on-year. In terms of profit, the gross profit margin of the home textile business in 2023 was 50.57%, up 2.1 percentage points from the previous year; the gross profit margin of the home furnishing business was 33.83%, down 3.4 percentage points from the previous year; the domestic home textile business achieved net profit of 533 million yuan, an increase of 10.25% over the previous year; and the net profit of the overseas home furnishing business was 39.39 million yuan, down 59% year on year, affecting the company's overall performance. In terms of channels, as of the end of 2023, the company had 335 direct-run stores and 2,395 franchise stores; the net number of stores opened was 28 and 40, respectively, and the opening schedule had basically reached the plan set by the company at the beginning of the year.
The decline in revenue and profit in the first quarter of '24 was mainly due to overseas inflation and a decline in real estate, which fell short of expectations in the overseas furniture business revenue and gross margin. By business, the company's two main businesses showed different levels of prosperity. The steady progress of the home textile business ensured that the company's overall performance showed a certain degree of resilience; the overseas furniture business was dragged down by the macroeconomic environment of US inflation, and revenue and performance declined to a certain extent.
The profit margin of the home textile business remained excellent, and the company's overall profit margin was dragged down by the home furnishing business. The company's overall gross profit margin in 2023 was 47.27%, up 1.31 pts from the previous year; its gross profit margin in China was 50.57%, up 2.1 pts year on year; online business gross profit margin was 52.21%, up 1.68 pts year on year; direct operating gross profit margin was 67.25%, up 0.7 pts year on year; franchise gross profit margin was 47.42%, up 0.72 pts year on year; overseas gross profit margin was 33.83%, down 3.4 pts year on year. The profitability of the home textile business is relatively stable, and profit margins will recover in the future as overseas demand stabilizes and improves and the recovery of the overseas furniture business. The first quarter of '24 was mainly due to a decline in profits of the company's overseas subsidiaries and a reduction in government subsidies compared to the same period.
The company's inventory and cash flow are generally stable, and excellent dividend rates are guaranteed. At the end of 2023, the company's inventory was 1,344 billion yuan, a year-on-year decrease of 17.9%. Inventory balance and turnover days improved markedly. Net cash flow from the company's operating activities in 2023 was $936 million, an increase of 117%. The company's overall cash flow has been continuously optimized, and the quality of operations has been further improved, which also provides a cash basis for the company's cash dividends.
The 2023 dividend is 0.4 yuan per share, and it is planned to plan a dividend of not less than 0.2 yuan per share for the 2024 semi-year. Overall, the overall dividend of 0.6 yuan or more per share has been maintained.
Profit forecast and investment rating: The company's main home textile business continues to expand and implement refined operations online and offline; overseas Lexington Home Furnishing brands are of high quality and can be expected to resume growth, and at the same time, they are optimistic that the company will continue to have a high level of dividends. Net profit due to mother in 2024-2026 is estimated to be RMB 581, 6.39, and 713 million yuan. Currently, the corresponding PE price is 12.82, 11.66, and 10.44 times, respectively, maintaining the “recommended” rating.
Risk warning: Competition in various channels in the industry has intensified, inventories are not digested in a timely manner, and high overseas inflation continues.