The 4Q23 results were in line with our expectations, and the 1Q24 results exceeded our expectations: 2023 revenue of 6.233 billion yuan, +7.12% year over year; net profit to mother of 447 million yuan, +212.50% year over year. Corresponding to 4Q23 revenue of 1,802 million yuan, +15.54% year-on-year; net profit to mother was 87.53 million yuan. 1Q24 revenue was 1.381 billion yuan, +15.60% YoY; net profit to mother was 124 million yuan, +34.61% YoY. The year-end dividend was 0.3 yuan/share, and the cash dividend rate was 56%.
The company's 4Q23 performance was in line with our expectations and the performance report; the 1Q24 performance was higher than our expectations, mainly due to the improvement in the company's channel efficiency, which led to an increase in share.
Development trends
Revenue continues to accelerate, and business improvements continue. 4Q23 revenue was +16% year over year, and growth accelerated under a low base. By channel, offline (distribution+decline), online, engineering, and overseas revenue in 2023 was +11%/+23%/-20%/-20%, of which 2H23 revenue was +13%/+27%/-29%/+5% year-on-year. E-commerce and declining channels are clearly driving. Engineering channels focus on risk control, and overseas channels have continued to recover since 3Q23. By category, revenue from hoods, stoves, and water heaters in 2023 was +22%/+6%/-6% (total revenue accounting for 83%). Of these, 2H23 revenue was +28%/+14%/-3% year-on-year, with a high increase in smoke machine revenue. Dishwashers and integrated cookers earned +17%/+23% YoY in 2023, of which 2H23 revenue was +39%/+18% YoY. 1Q24 revenue was +16% year-on-year. The company continues to promote high-end product upgrades. We estimate that the company's offline, offline and overseas channel revenue will continue to grow rapidly.
Profitability continues to increase. 1) The gross margin in 2023 was 41.5% (+2.7ppt year over year), thanks to product structure upgrades and channel structure optimization. Among them, 4Q23 gross margin was 43.1% (+8.3ppt year over year), mainly due to concentrated adjustments in freight accounts during the same period in 4Q22. In 2023, the company's offline, online, engineering, and overseas gross margins changed year-on-year - 1.4/+5.5/-0.4/+2.8ppt, and the expansion of sinking channels dragged down offline gross profit margins in the short term. In 2023, the company's sales/management/R&D/finance expense ratio remained flat compared to +0.4/+0.2/-0.5ppt/year-on-year. The company accrued asset and credit impairment losses of 188 million yuan for the full year of 2023 (mainly accrued by some real estate agents and KA channel providers). Along with the gradual accrual of bad debts related to the company's real estate, we believe that the company's 2024 statement side is expected to show a more realistic operating situation. Excluding the effects of related impairment, we estimate the net interest rate due to mother of 9.3% in 2023, compared to +2.5ppt in 2022 at the same caliber.
2) The gross margin for 1Q24 was 41.9% (+2.2ppt year over year), and the upward trend in gross profit continued. 1Q24 The company's sales/management/R&D/finance expense ratio was +1.9/-1.0/-0.5/-0.4ppt. Taken together, the net profit margin for 1Q24 was 9.0% (+1.3ppt year over year), and the net interest rate for the single quarter was close to the highest point in the same period in history.
Profit forecasting and valuation
The company's share in the kitchen appliance market increased, weakening the negative impact of the real estate post-cycle. We raised our 2024/25 profit forecast 15%/23% to $642/740 million. The current stock price corresponds to the 2024/25 price-earnings ratio of 8.4 times/7.3 times. We raised our target price by 10% to 8.15 yuan, corresponding to a price-earnings ratio of 10.8 times/9.3 times in 2024/25, with 28% upside compared to the current stock price.
risks
There is a risk that the decline in real estate sales will exceed expectations; market competition will increase the risk.