Description of the event

The company disclosed its annual report and performance forecast: In 2023, the company achieved operating income of 1,855 billion yuan, a year-on-year decrease of 7.47%, net profit to mother of 203 million yuan, an increase of 23.43% year-on-year, and deducted non-net profit of 186 million yuan, an increase of 47.78% over the previous year. Among them, the fourth quarter of 2023 achieved operating income of 557 million yuan, a year-on-year increase of 25.84%, net profit to mother of 509.727 million yuan, an increase of 32.19% year-on-year, and deducted non-net profit of 52.2515 million yuan, an increase of 218.2% over the previous year. At the same time, the company disclosed a pre-increase in performance. It is estimated that the deducted non-net profit for the first quarter of 2024 will be 57.553 million yuan to 62.8857 million yuan, an increase of 122.5% to 143.11% over the previous year.

At the same time, the company pays a cash dividend of 10.00 yuan (tax included) for every 10 shares and uses the capital reserve to increase 3 shares for every 10 shares.

Incident comments

Domestic demand is recovering, and the decline in export orders has caused the company's revenue to drop in single digits year over year. The company achieved a 7.47% year-on-year decrease in revenue in 2024. By category, the company's massage chair revenue fell 5.9% year on year, small massage appliances fell 28.22% year on year, and experiential massage service revenue fell 16.23% year on year. At the regional level, domestic sales revenue fell 5.16% year on year in 2023, mainly due to demand still recovering, and the company continued to expand streetfront specialty stores, improve physical stores, promote retail transformation of specialty stores, combine offline sales, online planting, short videos, etc., to increase store exposure and attract traffic, and launch new product series of massage chairs such as S80 and 8800MAX, which successfully led to a steady increase in both high-end massage chairs and fashion massage chairs. Export sales revenue fell 8.59% year on year, and the number of orders from major customers declined. Among them: the Korean market declined significantly in the first half of 2023, but order volume recovered in the second half of the year; the US market gradually picked up in the second quarter, but due to inflation and banking events in the first half of the year, there was still a slight decline compared to the same period of the year; the European, Middle East and Southeast Asian markets generally showed stable performance, and the Russian market increased significantly.

The reduction in raw material costs and the company's active optimization of the product structure and cost reduction and efficiency have greatly increased the company's gross margin and optimized operating profit margin. The company achieved a year-on-year increase in gross margin of 4.3 percentage points to 30.82% in 2023, mainly due to a decrease in raw material costs. At the same time, the company actively adjusted its product structure. In response to the characteristics of different countries, markets and channels, the company optimized the product portfolio through differentiated means such as product innovation and product customization to meet the needs and changes of different markets, and the company adopted measures to optimize supply chain management and improve production efficiency. On this basis, the company's sales expenses in 2023 decreased by 2.47% year on year, and the corresponding sales expenses rate increased only slightly by 0.56 percentage points, mainly due to the year-on-year decrease in the company's star endorsement fees and sales staff; the company's management expenses increased 11.08% year on year, mainly due to the year-on-year increase in the company's employee remuneration, intermediary consulting service fees, office expenses and other expenses; the R&D expenses rate decreased 0.1 percentage points year on year. The company's financial expenses rate increased 0.27 percentage points year on year due to the reduction in foreign exchange earnings. 21.09%, corresponding to a 1.41 percent year-on-year increase in the company's gross margin for the fourth quarter of 2023, a 4.77 percent year-on-year decrease in sales expenses, and a sharp increase of 70.47% in operating profit.

Investment advice: As a leader in the domestic massage chair market and an important manufacturer of massage chairs in the world, the company has an advantageous position in the industry. The company has accumulated a complete massage chair R&D, industrial design and quality control system. The domestic market already has a good brand recognition foundation, and the foundation of cooperation with major overseas customers is stable and is expected to drive new customer growth. As a result, as the demand side gradually recovers and stabilizes, the company is expected to usher in relatively rapid recovery growth. The company's net profit for 2024-2026 is estimated to be $241, 2.87, and 339 million yuan, respectively, and the corresponding PE is 12.73, 10.72, and 9.05 times, maintaining a “buy” rating.

Risk warning

1. Demand recovery is slow due to fluctuations in the economic situation;

2. Revenue adjustments due to fluctuations in orders from major customers.