Key points of investment:
Introduction: The company's main business is R&D, production and sales of bathroom accessories products such as showers, shower systems, faucets, hoses, lift bars and spare parts, accounting for about 65% of foreign revenue in 2023. In 2023, the company divested the Song Lin family and acquired a minority stake in Bejet, with a clear strategy to focus on the manufacturing industry.
Revenue is gradually picking up, beauty and health are impressive, and gross margin is rising.
1) According to the 2023 annual report previously released by the company, operating income for 2023 was about 2.98 billion yuan, down 6.20% year on year, net profit to mother was about 350 million yuan, up 34.94% year on year, net profit after deducting non-return to mother was about 360 million yuan, up 24.21% year on year; 2024Q1 achieved revenue of about 680 million yuan, up 12.61% year on year, net profit of about 110 million yuan year on year, up 154.72% year on year, net profit from non-return to mother was 100 million yuan, a sharp increase of 156.89% year on year.
2) In 2023, kitchen and bathroom health revenue was 2.6 billion yuan, down 7.46% year on year, and outstanding beauty and health performance revenue was 260 million yuan, up 79.19% year on year. After divesting Song Lin's family, 24Q1 achieved revenue of 680 million yuan, a year-on-year increase of 12.61%. Health Hardware's revenue continued to grow positively in a single quarter.
3) The company's kitchen and bathroom health achieved a gross profit margin of 33.36% in 2023, an increase of 2.73 pct over the previous year, and the gross margin of beauty and health increased 3.53 pcts year over year to a high of 58.25%; in 24Q1, the company's comprehensive gross margin reached 35.5%, with varying increases over the same period last year.
The cost pressure of divesting Song Lin's family has been relieved. The company divested the Song Lin Family business in 2023, and the cost pressure was clearly alleviated. The sales expense ratios for 23Q4 and 24Q1 decreased by 2.1 pct and 2.0 pct, respectively. Even in the context of equity incentives, the management expense ratios fell 1.6 pct and -0.5 pct year on year, respectively. The company's 24Q1 net margin rose to a high of 16.35%.
The strategy to divest the Song Lin family and acquire a minority stake in Bejet to focus on the manufacturing industry is clear. In 2023, the company divested the Songlin family business, which had been losing money for several years, with a clear strategy focusing on the manufacturing industry, and the company's net profit is expected to return to normal; the company acquired 49% minority shares in Beijet (Beijet achieved net profit of 82.1 million yuan in 2023) to increase its expansion into the sanitary ware sector.
Give it an “better than the market” rating. The company divested the Song Lin family and returned to the manufacturing industry, acquired Bejet's minority shareholders' shares, focusing on the manufacturing industry with a clear strategy and high equity incentive goals. We expect the company's 2024-2026 EPS to be about 1.19, 1.50, and 1.73 yuan, respectively, giving 2024 PE17-20 times, a reasonable value range of 20.23 to 23.80 yuan, and a “superior to the market” rating.
Risk warning. Overseas demand has slowed sharply, and major customers are at risk of dependency.