The company announced its results for the year 23. 1) Revenue side: Overall revenue fell from US$1,989 billion in '22 to US$1,375 million in '23, down 30.9% year-on-year, mainly due to major customers favoring more conservative inventory policies in the face of macroeconomic uncertainty. 2) Interest rate side: Gross margin in '23 was 28.1%, down 2.3 pct year-on-year, mainly due to losses due to inventory impairment; net profit loss of US$37 million in '23. 3) Cost side: R&D costs increased to US$71 million, up 7.5% year on year, mainly due to the company's continuous investment in commercial products and an increase in the number of R&D personnel; net financial costs were US$03 billion, down 85.2% year on year, mainly due to rising interest on deposits denominated in US dollars and falling interest on bank loans denominated in RMB.
OPE's growth fell short of expectations, and power tools faced a slowdown in housing demand, an industry inventory removal cycle, and a decline in sales revenue. 1) In terms of product categories, OPE product revenue declined from US$1,224 million in '22 to US$811 million, down 33.7% year on year, mainly due to conservative customer inventory policies compounding the negative impact of unfavorable weather in North America on consumer demand related to OPE; power tools experienced a decline after years of rapid growth, achieving revenue of US$549 million in '23, a year-on-year decrease of 27.3%. 2) In terms of business, OBM's revenue for 23 years was US$1.06 billion, a year-on-year decrease of 27.2%, and the share of total revenue increased slightly from 69.5% to 73.2%. 3) In terms of geographical location, the company's revenue in China increased 1.1% year on year in '23, and decreased by 37.3% and 11.0% year on year in North America and Europe.
“Innovation” is the driving force to make the brand flourish. 1) EGO: The company continues to develop and promote flagship EGO brand products to further expand the scope of the EGO 56V ecosystem; strengthen relevant sales channels, develop strategic cooperation with John Deere, expand the sales scope of EGO lithium battery products through its strong sales network, and continue to penetrate the North American market. 2) FLEX: Continuing to innovate and launch more than 40 new products around the world, with the aim of tailoring suitable tools for workers, such as STACK PACK, specially designed for use on the job site, in the workshop, and during transportation. 3) SKIL: The business rebounded in the second half of the year and achieved growth. New products launched on multiple platforms received internationally renowned awards such as the 2023 Electric Tool Innovation Award and the 2023 Red Dot Award. 4) DEVON: The business achieved high double-digit growth, and innovative specialty products grew rapidly. The sales volume of 20V lithium battery packs in the Chinese market exceeded 4 million; at the same time, it focused on developing new media marketing activities, which had more than 1 billion impressions.
Internal and external improvements continue, and future profit margins are yet to be repaired. 1) Internal: The company adopted advanced management tools and employed top consulting services in 23 years, and its strategic planning and decision-making capabilities have been strengthened; Quanfeng New Energy Industrial Park Phase II has been completed and put into operation, improving both production efficiency and industrial layout, which is conducive to long-term sustainable business growth in the future. 2) External: An improvement in the objective market economy, an increase in the market penetration rate of lithium battery products combined with a reversal of the inventory removal cycle and a recovery in customer demand, the company's future financial performance is expected to recover and grow.
Maintain a “Highly Recommended” investment rating. As a leader in power tools and OPE, the company has deep product technology accumulation. EGO/FLEX etc. anchor high-end consumers. Due to macroeconomic uncertainty in 2023, the main customers preferred more conservative inventory policies, and the 2023 revenue and profit sides were lower than expected, so the profit forecast for 24-25 years was reduced. We expect the company to achieve net profit of 7.25, 9.84 and 1.07 billion yuan in 2024 to 2026, respectively, up +376%, +36% and +13% over the previous year, corresponding to the current stock price 2024 PE is 15.8X.
Risk warning: Demand for channel restocking falls short of expectations, fluctuating raw material prices, and changes in the international situation cause trade frictions