Incident: The company announced its 2023 annual report. In 2023, the company achieved revenue of 665 million yuan, a year-on-year decrease of 17.3%; realized net profit of 171 million yuan, an increase of 51.9% over the previous year. In the fourth quarter, the company achieved revenue of 193 million yuan, a year-on-year decrease of 28.4%; net profit to mother was 119 million yuan, a year-on-year decrease of 6.2%.
Private brand revenue was under pressure in the fourth quarter, and OEM revenue continued to grow. In the fourth quarter of 2023, the company's independent brand and OEM/ODM business achieved revenue of 167 million yuan and 0.27 million yuan respectively, -33% and +40% year-on-year respectively. The revenue growth rate of the independent brand business was under pressure in the short term, and the OEM business continued to grow at a high level. Splitting the independent brand business: ① Looking at independent brands by region, domestic sales and export sales fell 26% and 81% year-on-year respectively in the fourth quarter of 2023. The decline in domestic sales widened slightly due to weak terminal demand. The decline in export sales revenue is mainly due to the fact that the overseas business of the company's own brands is still in the process of channel and operation model adjustment. ② Looking at independent brands by category, the revenue of electrical appliances and non-electrical products decreased by 42% and 4%, respectively, in the fourth quarter of 2023, and the year-on-year decline in revenue from non-electrical products narrowed. The company's OEM business continued to grow at a high year-on-year rate in the fourth quarter, mainly due to overseas customer inventory levels falling back to normal levels and a gradual recovery in order pace.
Cost reduction and efficiency continued to advance, and profitability improved steadily. The company's gross margin for the fourth quarter of 2023 was 54.5%, up about 3 pcts year on year. It is estimated that the domestic business revenue share of the company's high-margin independent brands increased year on year, and cost reduction and efficiency also contributed to the increase in gross margin. The company's expense ratio during the same period was 47.0%, up about 4 pcts year on year. Among them, sales and R&D cost rates increased by about 2 pct and 3 pct year on year, respectively. The increase in sales cost ratio is estimated to be mainly due to weak demand, the share of independent brand offline channels with low cost conversion efficiency and high cost rates increased. The increase in R&D cost ratio is mainly due to companies continuing to increase investment in R&D against the backdrop of declining revenue. The company's net interest rate for the fourth quarter of 2023 was 9.8%, an increase of 2 pct over the previous year, and profitability continued to improve steadily.
The implementation of the repurchase plan shows the company's confidence in future development. The company announced a repurchase plan in mid-late March. It plans to use its own capital of 15 to 30 million yuan to repurchase the company's shares. The repurchase price is no more than 10 yuan/share. The repurchase shares are mainly used to implement employee stock ownership plans or share incentive plans; if the company fails to use the repurchased shares for these purposes within 3 years after disclosing the repurchase results and share change announcements, the shares repurchased by the company will be cancelled in accordance with law. The implementation of this repurchase plan fully demonstrates the company's confidence in future development and recognition of its own value.
Appropriately adjust the revenue from domestic sales and foundry business of independent brands, increase the gross margin assumptions of independent brands, and lower the sales expense ratio assumption. The net profit due to the company is expected to be 0.80/0.91/102 million yuan in 2024-2026 (previously, the company's net profit to mother was 1.06 billion yuan or 128 million yuan respectively), and the corresponding EPS was 0.24/0.28/0.31 yuan, respectively, giving DCF a target valuation of 7.95 yuan, maintaining the “increase in holdings” rating.
Risk warning
The risk that the promotion of new products or the desire to consume will not meet expectations; the risk that overseas demand will not meet expectations; the risk of increased competition in the industry.