Description of the event

The company disclosed its three-quarter report: The company achieved operating income of 5.068 billion yuan in the first three quarters of 2024, a year-on-year decrease of 8.09%, realized net profit to mother of 0.621 billion yuan, a year-on-year decrease of 5.68%, and realized deducted non-net profit of 0.502 billion yuan to mother, a year-on-year decrease of 11.05%.

The company achieved operating income of 1.702 billion yuan in the third quarter, a year-on-year decrease of 13.62%, realized net profit of 0.237 billion yuan, a year-on-year decrease of 9.69%, and realized deducted non-net profit of 0.181 billion yuan to mother, a year-on-year decrease of 15.57%.

Incident comments

The industry as a whole is under pressure, and there is still pressure on the revenue side. The company promoted product structure optimization, and gross margin increased significantly. The company's revenue for the first three quarters fell 8.09% year on year, and revenue for the third quarter fell 13.62% year on year. The industry will still need some time to recover from the negative effects of multiple factors such as declining real estate and weak consumer demand. On this basis, the company's gross margin increased by 1.11 percentage points year on year, or mainly driven by product structure optimization, the sales ratio of products with high profit levels, such as high-end intelligent products and solution products, increased, and the share of low-price products decreased accordingly; at the same time, the sales expense ratio increased 0.59 percentage points year on year, or mainly due to the increase in e-commerce channel promotion costs and the decline in traffic conversion rates. The R&D expense ratio increased 0.96 percentage points year on year. The R&D expense ratio fell 0.78 percentage points year on year, and R&D expenditure investment was still at a high level. The financial expense ratio increased 1.44 percentage points year on year. Combined, the company's operating profit (gross profit - sales expenses - management expenses - R&D expenses - financial expenses - operating tax and surcharges) was 0.22 billion yuan, a year-on-year decrease of 20.03%. Taking into account the increase in investment income and the increase in the comprehensive income tax rate, the company's net profit without income deducted from mother fell 15.57% year on year in the third quarter.

The company focuses on upgrading high-end products and actively optimizes channel layout at home and abroad. The company continues to promote the market coverage and store upgrading of the C-side business, keeping up with the trend of fashion and rejuvenation to meet the multi-level needs of consumers; the B-side business focuses on solution services, gradually establishing brand effects and competitive barriers in the commercial license market. Demand for middle- and low-end scenarios has decreased, and large-scale projects such as factories, hotels and office buildings have grown, helping to enhance the company's profitability. In terms of channel construction, the company has improved the quality of distribution outlets through measures such as optimizing inefficient distributor outlets, expanding the home improvement market through offline stores and home improvement companies, while continuing to promote the construction of overseas core dealers and stores, focusing on B-side benchmark customers and promoting the development of global independent brands. The company is expected to maintain steady growth in overseas markets, and the domestic market is expected to recover as second-hand housing sales pick up and overall consumer confidence recovers.

Investment advice: The company has been deeply involved in the lighting industry for more than 20 years and has established a strong competitive advantage in terms of brands, channels, R&D technology, production and operation, talent and management. On this basis, the company continuously improves digital intelligence construction and internal management system construction, and builds and optimizes information systems, management systems and processes with international standards to further improve the level and efficiency of management. We expect the company's net profit to be 8.76, 9.42, and 1,014 million yuan respectively for 2024-2026, corresponding PE of 15.5, 14.4, and 13.4 times, respectively, to maintain a “buy” rating.

Risk warning

1. The risk of price fluctuations of major raw materials;

2. Risk of falling share and profit efficiency due to increased market competition.