Incident: The company released its 2023 annual report, achieving full-year revenue of 1,855 million yuan, -7.47% year over year; net profit to mother of 203 million, +23.43% year over year; net profit after deducting non-return to mother of 186 million, +47.78% year over year.

It is proposed to distribute a cash dividend of 1 yuan (tax included) per share, and 3 shares will be added for every 10 shares of capital reserve.

Comment:

Revenue declined under pressure throughout the year, and the Q4 revenue growth rate increased at an inflection point in the single quarter. Looking at the subregions, the company's domestic sales/export sales revenue in 2023 was 817 million/1,028 million, respectively. Among them, the domestic sales business was affected by a weak recovery in the domestic consumption environment and the restructuring of the company's Madoda brand organization structure, while the export business was clearly affected by customer inventory removal in the first half of the year, but signs of improvement are already showing. The company's Q4 revenue growth rate in the single quarter was positive, and profits continued to increase rapidly. According to the company's annual report, the company's revenue for the single quarter of 2023Q4 was 557 million, a net of +25.8 percent compared to the same period. Profit was $51 million, +32.19% YoY. It is expected that the positive trend of the company's operations will continue as industry demand picks up and new products are launched in the future.

Raw material prices have declined, product and customer structure has been optimized, and profit levels have improved. The company's comprehensive gross margin for 2023 is +4.30pct to 30.82% year on year, mainly due to falling raw material prices, optimization of product and customer structure, and improvement of the company's supply chain management; in terms of the period cost ratio, the company's 2023 sales/management/R&D/finance expenses ratio was +0.56/+0.70/-0.10/+0.27pct to 11.02%/4.23%/4.32%/-0.80%, respectively. Under the combined influence, the annual net profit margin was +2.74pct to 10.96% yoy. Q4 The gross profit margin for the single quarter was 28.42% (+1.40pct year on year, -4.53pct month on month), and the net profit margin was 9.13% (+0.43pct year on year, -2.42pct month on month), and the company's overall profitability improved year on year.

Refined management of domestic and foreign sales markets helps improve brand power. According to the company's annual report, (1) in the domestic sales market, offline channels continue to expand streetfront specialty stores and promote retail transformation in specialty stores. Online channels have multi-platform full-price product layout, increased investment in Douyin channel resources through brand self-broadcasts, etc., and brand strength continues to improve. (2) Export market. While the company's cooperative relationship with Korean customers is stable and the US market is expanding, the European and Southeast Asian markets are split into two independent teams. It is expected that more targeted products will be launched for different overseas customers in the future to promote the company's overseas business expansion. Furthermore, the company's annual report shows that the company plans to build a factory in Thailand, which is expected to further benefit the company's Southeast Asian market development and market share increase.

Investment advice: The company continues to cultivate the massage chair circuit and actively carry out customer development and product upgrades. We expect the company's net profit to be 2.45/2.85/334 million yuan respectively in 2024-2026, corresponding to the current market capitalization of PE 13/11/10 times, respectively, to maintain a “buy” rating.

Risk warning: New product development falls short of expectations, raw material prices fluctuate, consumption recovery falls short of expectations, etc.