Matters:

The company publishes its 2023 annual report and 2024 quarterly report. In 2023, the company achieved revenue/net profit attributable to mother/ net profit after deduction of RMB 16.9/33/320 million yuan respectively, +22.2%/+49.7%/+46.2% year-on-year. In 24Q1, the company achieved revenue/net profit attributable to mother/net profit after deduction of RMB 2.9/0.6/60 billion, respectively, or +5.7%/+15.1%/+15.8% year-on-year.

Commentary:

Smart home products are growing rapidly, and omnichannel expansion has achieved remarkable results. 1) By product, in 2023, the company's smart home products/clothes rack products/other products achieved revenue of 14.3/2.2/0.2 billion yuan respectively, +26.4%/+1.6%/+1.7% compared with the same period last year. The company launched a series of marketing activities around smart home products such as “China Clothes Drying Festival”, “920 Good Wife Festival”, and “Launch Anniversary”; and used online platforms such as Weibo, Douyin, Xiaohongshu, and B-station to strengthen the “experiential smart home leader” brand positioning, which effectively led to a high increase in smart home product revenue. Smart home products accounted for 84.9% of revenue in 2023, +2.8 pct year on year. 2) Looking at each channel, the company adheres to an online and offline omni-channel layout. The online channel adopted a global integration approach. Shelf e-commerce platforms such as Tmall and Jingdong grew steadily, and the layout of emerging platforms such as Douyin was accelerated, effectively improving customer stickiness under a precise operating model. The company led the industry's sales volume for 8 consecutive years, and achieved online revenue of 1.01 billion yuan in 2023, +13.7% over the same period last year. Offline channels are steadily advancing the “Frontier Renewal” campaign, with accurate investment promotion in cities and divisions, and deepening the layout of new channels such as hardware stores, new retail, and KA, effectively increasing the breadth and depth of market expansion. At the same time, the company deeply empowers dealers and provides relevant operational support from training to supporting policies. The leading edge of offline channels continues to be consolidated, and the company's offline channel achieved revenue of 670 million yuan in 2023, +37.5% over the same period last year.

Profitability continued to increase, and expenditure increased slightly. 1) In 2023, the company achieved a gross profit margin of 51.4%, or +5.0pct compared to the same period, or mainly due to the optimization of the company's product structure. The self-supply ratio of core components increased superposition, which contributed to cost reduction and efficiency. On the cost side, the company achieved sales/management/finance expense ratios of 20.3%/5.2%/-0.5%, respectively, compared with +1.7/-0.4/+0.1pct. Among them, the sales expense ratio increased, mainly because the company increased its promotion efforts through offline channels and e-commerce platforms. Taken together, in 2023, the company achieved a net profit margin of 19.4%, +3.6pct year-on-year.

2) In 24Q1, the company achieved a gross profit margin of 51.9%, +6.2pct year-on-year. On the expense side, the company achieved sales/management/finance expense ratios of 21.9%/7.2%/-1.2%, respectively, +3.1/+0.4/-0.2pct compared to the previous year, which comprehensively affected the company's net profit margin of +1.5pct to 19.0%.

Deep channel cultivation empowers the development of multiple categories, and we are optimistic about the company's future development. As a leading enterprise in the field of smart drying, the company is speeding up the smart door lock circuit layout, and is expected to continue to build a second growth curve. Considering the company's increased cost investment, we expect the company's net profit to be 3.9 5/46,549 million yuan in 24-26 (the original value was 408/468 million yuan in 24-25), and the PE corresponding to the current stock price is 15/13/11X, respectively; referring to the relative valuation method, 20 X for 24 years is given, corresponding to a target price of 19.56 yuan, maintaining a “strong push” rating.

Risk warning: Prices of raw materials have risen sharply, demand for home furnishings falls short of expectations, real estate sales fall short of expectations, etc.