Key points of investment:
The company released its 23rd annual report and 24Q1 results announcement: 1) Year 23: The company's revenue was 8.195 billion yuan, up 25.8% year on year, net profit to mother was 263 million yuan, down 26.6% year on year, after deducting non-net profit of 235 million yuan, down 27.3% year on year.
Q4 The company's revenue in a single quarter was 2,419 billion yuan, up 28.3% year on year. Net profit attributable to mother was $103 million, mainly due to depreciation. The total credit and asset impairment for 23 years totaled $280 million. 2) 24Q1: The 24Q1 company's revenue was 2,354 billion yuan, up 39.0% year on year, and net profit to mother was 103 million yuan, up 31.2% year on year, after deducting non-net profit of 103 million yuan, or 34.0% year on year.
Cross-border e-commerce drives the rapid expansion of independent brands; Yongyu Home also contributed to increased performance; the traditional OEM business was under pressure in 23 years under pressure under high inventory, and 24-year growth is expected to recover.
Cross-border e-commerce: Supply chain advantages create cost-effective products+overseas warehouse advantage+multi-platform efforts, and cross-border e-commerce continues to expand rapidly. The company's e-commerce revenue in '23 was 1.62 billion yuan, an increase of 60.5% over the previous year. In 2022, the company reorganized the e-commerce team, actively laid out the cross-border e-commerce business, enriched product categories (office chairs, massage chairs, sofas, lift tables, etc.), built a multi-dimensional brand matrix, warehousing and logistics (built its own overseas warehouse), and rapidly expanded the cross-border e-commerce business. The company has built a complete and high-quality supply chain system, continuously deepened the global layout and brand strategy, and integrated resources into more explosive cross-border e-commerce business. The cross-border e-commerce sales channels cover US online retail platforms such as Amazon, Wayfair, and Walmart, as well as major domestic overseas e-commerce platforms such as TikTok and TEMU. At the same time, the company has set up 5 warehousing and distribution centers in North America, which have basically covered the company's cross-border e-commerce terminal consumer product distribution scope. I am optimistic that the company will take advantage of the dividends of cross-border e-commerce, and the e-commerce business will continue to expand rapidly.
Foundry business: Driven by stock replenishment and improved overseas consumption expectations, OEM business growth is expected to recover. In 2023, the company's foundry business (including Yongyu Home Furnishing) achieved revenue of 4.815 billion yuan, an increase of 29.1% over the previous year. Among them, the new material flooring business (Yongyu Home Furnishing) contributed 1.49 billion yuan in revenue, and the traditional foundry business (excluding Yongyu Home) revenue of 3.33 billion yuan, a year-on-year decrease of 4%. Affected by high overseas inventories and inflation squeezing consumption in the previous period, the growth of the company's traditional OEM business in '23 was under pressure. Along with the digestion of overseas inventories and demand for inventory replenishment, US consumption expectations are improving, and they are optimistic about export business growth and recovery. While deepening the European and American markets, the company is actively marketing by forming a new marketing team with R&D and design capabilities to provide customers with full-solution product design, actively participate in domestic and foreign furniture exhibitions, enhance localized service capabilities, successfully extend the market to the Middle East, South America and other regions, and further enrich the company's products and market structure. For example, the company signed a cooperation agreement with the Emirati company Mass Vision to further cultivate the UAE home furnishing market. With the help of export restoration and the company's strengthening of its competitive advantage, I am optimistic that the company's OEM business will usher in restoration.
Profitability: Strengthen supply chain management and significantly increase gross margin. The company's gross margin in '23 was 23.78%, up 2 pct year on year, and 24Q1 gross margin was 24.80%, which was basically the same as year on year. The company strengthens supply chain management and improves management efficiency. The Supply Chain Management Center establishes a group-wide material database, unifies inquiries and tenders, and performs grade management for suppliers. Through large-scale direct procurement, combined with changes in market materials, it effectively reduces material procurement costs, continuously maintains product price competitiveness, enhances supply chain side profitability, and enhances the overall gross profit margin of the product.
The company takes advantage of cross-border e-commerce dividends to actively cultivate its own brands, concentrate resources to support cross-border e-commerce business, and embrace multiple platforms. E-commerce revenue is expected to continue to grow rapidly; driven by bank replenishment and improved overseas consumption expectations, traditional OEM business growth is expected to resume; Yongyu Home is also showing an increase in performance. At the same time, the company disposes of inefficient and unrelated assets, optimizes asset allocation, and increases turnover. Considering the continued rapid growth of the company's cross-border e-commerce, we raised net profit to mother in 24-25 to 5.62 billion yuan and 687 million yuan (previous values were 554 million yuan and 666 million yuan), adding net profit to mother for 26 to 837 million yuan. Net profit to mother increased by 113.5%, 22.2%, and 21.8% year-on-year respectively. Corresponding PE was 11, 9, and 7 times, respectively, maintaining the “buy” rating.
Risk warning: Cross-border e-commerce business development falls short of expectations, and overseas consumption recovery falls short of expectations.