Case E_s Case U: mm Gong A Shi Ri issued] Annual Report for 2023 and Report for the First Quarter of 2024. In 2023, the company achieved revenue of 3,538 billion yuan, -12.75%; net profit to mother of 298 million yuan, -11.14% year over year; deducted non-net profit of 209 million yuan, -13.82% year on year; and basic earnings per share of 0.95 yuan. In 23Q4, the company achieved revenue of 1,038 billion yuan, +19.7% year on year; net profit to mother of 87 million yuan, +72.39% year on year; deducted non-net profit of 14 million yuan, -72% year over year. In 24Q1, the company achieved revenue of 857 million yuan, +22.96% year on year; net profit to mother of 43 million yuan, -17.47% year over year; deducted non-net profit of 43 million yuan, +21.6% year over year.
Internal efficiency improvements continue to reduce costs, and invest heavily in independent brand building.
Gross profit margin: In 2023, the company's comprehensive gross margin was 22.88%, +3.54 pct year-on-year. Among them, the gross margin for the 23Q4 single quarter was 22.41%, +1.08 pct year over year, and -0.59 pct month over month. The increase in gross margin in '23 is mainly due to: 1) the company promoted standardized parts, modular research and development, strengthened purchase-side management, and increased the self-production ratio of core components; 2) private brands with higher gross margins grew rapidly, and their share increased markedly.
In 24Q1, the company's gross margin was 22.11%, -0.33 pct year-on-year, and -0.3 pct month-on-month.
Expense rate: In 2023, the company period cost rate was 15.67%, +4.08 pct year-on-year. Among them, sales/management/R&D/finance expenses were 7.43%/5.88%/3.47%/-1.12%, respectively, with year-on-year changes of +3.81 pct/+1.54 pct/-0.49 pct/-0.77 pct. The company increased strategic investment in independent brand building, which in turn led to a rapid increase in sales expenses. In 24Q1, the company's cost rate was 16.88%, +0.04 pct year-on-year.
Among them, sales/management/R&D/finance expenses were 7.3%/5.94%/3.91%/-0.27%, respectively, with year-on-year changes of +0.92 pct/-0.26 pct/-0.09 pct/-0.53 pct.
Deducted non-net interest rate: In 2023, the company deducted the non-net interest rate of 5.91%, -0.07 pct year-on-year. Among them, the company's deducted non-net interest rate for the 23Q4 single quarter was 1.35%, -4.42 pct year on year, and -6.1 pct month-on-month, mainly due to a sharp increase in sales expenses during the quarter. In 24Q1, the company deducted non-net interest rate of 5%, -0.06 pct year on year, and +3.65 pct month-on-month.
The core category was under pressure for a short period of 23 years, and the development of new products continued to be accelerated. In 2023, the company's office chairs/sofases/massage chair body/leisure chairs/others achieved 25.58/5.37/2.37/0.29/ 166 million yuan respectively, -7.86%/-34.36%/-32.23%/-17.97%/+196.12%, respectively. The company continues to strengthen product research and development, further optimize product line planning and management organization, and develop new products such as smart office chairs, smart lift tables, and smart sofas. Among them, lift table products adhere to differentiated positioning and have successfully entered the global mainstream market for large retail customers, which have formed an effective increase in business.
Export sales are steadily expanding customers, and the production capacity layout is becoming more and more perfect. In 2023, the company's export sales reached 2,635 billion yuan, -17.88% year-on-year. The company frequently participated in exhibitions, visited customers, recommended new products, and formed a mature overseas sales team to successfully develop many important channels and major customers such as Costco and Sam's. Key major customers have achieved shipments one after another. At the same time, the company's global production capacity layout continues to be implemented. In recent years, orders and production capacity at the Vietnamese base have grown rapidly, achieving a rapid increase in US market share and large customer penetration rate; the Romanian production base was put into operation at 23H1, which will help the company explore European and other overseas markets in the future; and the company has accelerated the construction of the third phase of the Vietnamese production base to further expand the production capacity scale of the Vietnamese base.
Domestic sales have achieved single-digit growth, with full strength online and offline. In 2023, the company's domestic sales reached 892 million yuan, +7.91% year-on-year. On the online side, the company continues to cultivate traditional e-commerce channels such as Tmall and Jingdong to accelerate the deployment of platforms such as Douyin, Pinduoduo, and private community marketing. During the “Double Eleven” period in 2023, the online omni-channel GMV for own-brand chair products increased 256% year-on-year, rising to 2nd, 3rd, and 2nd place respectively on Tmall, JD, and Douyin platforms. On the offline side, the company launched the “100 Cities Attack” market coverage intensive cultivation plan and the “Lighthouse Benchmarking Plan”. The number of engineering channel customers and major direct management customers has further increased, and the construction of offline retail channels has been accelerated, and it has entered many large well-known supermarkets with its own brands.
Investment advice: The company is a leading global office chair company, deeply involved in expanding overseas market customers. The global production capacity layout helps increase its share. Domestic sales actively build its own brand, make comprehensive efforts to build core competitiveness, and the future of channel construction can be expected. The company is expected to achieve basic earnings of 1/1.21/1.46 yuan per share in 2024/25/26, corresponding PE is 12X/10X/8X, maintaining the “recommended” rating.
Risk warning: the risk of large fluctuations in raw material prices, the risk of export demand falling short of expectations, the risk of domestic sales independent brand building falling short of expectations, and the risk of increased market competition.