1-3Q24 results are in line with our expectations

The company announced results for the third quarter of 2024:1-3Q24 achieved revenue of 2.192 billion yuan, a year-on-year decrease of 0.09%, net profit to mother of 0.321 billion yuan, an increase of 5.49% year-on-year, after deducting non-return net profit of 0.296 billion yuan, an increase of 1.92% year-on-year. The results were in line with our expectations.

On a quarterly basis, the company achieved revenue of 0.681/0.766/0.744 billion yuan in 1Q/2Q/3Q24 respectively, +12.61%/-3%/-6.82% year-on-year, and net profit of 0.111/0.11/0.099 billion yuan, respectively, and +154.72%/+43.23%/-45.81% year-on-year respectively.

Development trends

1. Existing home sales in the US declined, and the company's performance was under pressure due to the high base. According to data from the National Association of Realtors, sales of existing homes in the US in January-September totaled 36.43 million units, down 3.03% year on year, and demand in the terminal market declined. Due to the high 3Q23 order base and the investment income generated by the transfer of Song Lin Family, 3Q24's revenue fell 7%, and net profit to mother fell 46%. We believe that as mortgage interest rates decline in the context of interest rate cuts, consumer confidence will gradually increase, which is expected to stimulate future housing demand in the US. We are optimistic about the company's development potential in the context of rising overseas demand.

2. The gross profit margin and net interest rate increased steadily, and the expense ratio increased slightly. The company's gross margin for 1-3Q24 was 35.39%, +0.32ppt year over year. On the cost side, the company's expense ratio for the 1-3Q24 period was 19.57%, +0.33ppt. Among them, the sales/management+R&D/finance expenses ratio was 2.93%/16.89%/-0.25%, respectively, -1.48pp/+1.68pp/+0.13ppt. The 1-3Q24 net interest rate was 14.63%, +0.77ppt year on year, due to increased net investment income and reduced asset and credit impairment.

3. Sanitary ware exports are expected to pick up, and the IDM strategy continues to advance. According to data from the General Administration of Customs, from January to September 2024, the total export value of plastic other household utensils and sanitary or toilet utensils (including bathroom accessories such as showers and sinks) fell 8.47% year on year. We believe this is related to the high base and the decline in demand. We believe that the company will further advance the IDM sharing platform strategy, actively expand overseas customers, adhere to the rapid development of kitchen, bathroom & beauty and health. Along with the continuous iterative upgrading of the company's product matrix, the gradual improvement of overseas factory construction, and the continuous advancement of international layout, the company is expected to further develop its scale advantage, seize market share, and drive future performance improvement.

Profit forecasting and valuation

The 2024/2025 profit forecast remains unchanged, and the current stock price corresponds to the 2024/2025 18/15 price-earnings ratio. Maintain an outperforming industry rating. Considering the rising risk appetite in the market, we raised our target price by 10% to 22 yuan, corresponding to the 2024/2025 price-earnings ratio of 19/16 times, with 9% upside compared to the current stock price.

risks

Prices of raw materials fluctuated greatly, exchange rates fluctuated greatly, global macroeconomic fluctuations, and overseas demand declined.