Core views
In '23, revenue and net profit to mother increased 11.5% and 21.4%. Traditional businesses grew steadily, while new businesses such as no headlights and new energy grew rapidly. 24Q1 revenue +14.06% year-on-year, and net profit to mother increased +26.3% year-on-year, mainly due to lower raw material prices, refined management of the supply chain, and procurement advantages. The 24Q1 company's gross profit margin was 42.2% /+5pct, and the net margin was 24.4% /+2.4pct. Looking ahead, 1) the electric connection and LED business will benefit from product upgrades and channel deepening layout; 2) there is broad business space without headlights or new energy charging guns/piles; and 3) overseas markets will provide an incremental portion.
occurrences
The company released its 2024 quarterly report: 24Q1 revenue of 3.803 billion yuan/ +14.06%, net profit of 929 million yuan/ +26.27%, net profit of 818 million yuan/ +26.73%; net cash flow from operating activities of 1,519 million yuan/ +5.52%, EPS (basic) of 1.05 yuan/share, ROE weighted 6.22% /+0.46pct.
The company released its 2023 annual report: 2023 revenue of 15.695 billion yuan/ +11.46%, net profit of 3.87 billion yuan/ +21.37%, net profit of 3.73 billion yuan/ +27.51%; net cash flow from operating activities of 4.827 billion yuan/ +57.86%, EPS (basic) of 4.36 yuan/share, +21.45% YoY, and ROE (weighted) of 29.20% /+1.32pct.
The company plans to pay a cash dividend of 31 yuan (tax included) for every 10 shares and increase 0.45 shares from the capital reserve fund.
Brief review
24Q1 revenue grew steadily, with lower raw material costs+lower procurement costs+lean cost reductions helping to increase performance. 24Q1 revenue was +14.06% year-on-year, maintaining steady growth. Converters are expected to grow steadily, and new businesses such as no headlights and new energy sources will continue to grow rapidly. Net profit to mother increased +26.3% in 24Q1, mainly due to lower raw material prices, refined management of the supply chain, and procurement advantages. The 24Q1 company's gross profit margin was 42.2% /+5pct, and the net margin was 24.4% /+2.4pct.
Traditional businesses grew steadily in 2023, and new businesses without headlights and new energy increased rapidly. Revenue and net profit to mother increased by 11.5% and 21.4% respectively in '23, of which: 1) Electric connection:
The company's electricity connection revenue in '23 was 7.387 billion yuan/ +4.77%, thanks to product line innovation and upgrading in line with the trend of youth, high-end and intelligence, and the price increase is expected to be the main driving force; 2) Smart electrical lighting: revenue of 7.902 billion yuan/ +15.37% in 23 years, the company's wall opening business focuses on sinking basic products, high-end products (such as butterfly wing switches), and smart products. In the LED lighting business, the basic light source business continues to enrich and expand its product line, and the headlight business is developing rapidly under the promotion of the Bull and Muguang brands; 3)： In 2023, the new energy business revenue was 380 million yuan/ +148.64%. The company continued to improve the NEV charging gun/pile and energy storage layout, focusing on C-side and B-side consumer companies to continuously improve the product layout; on the energy storage side, the company laid out household energy storage for the European market and industrial and commercial energy storage for the domestic market. By the end of 2023, the company had developed 17,000 terminal outlets and more than 1,500 B-side operator customers.
Profitability continues to be optimized, and marketing investment increases to help build brands. The company's gross profit margin in '23 was 43.2% /+5.2pct. Among them, the gross profit margins of electric connectivity, smart electrical lighting, and new energy were 40.9%, 45.8%, and 34.2%, compared with +6.6, +3.9, and +1.8 pct, respectively. The sales, management, R&D, and financial expense ratios for 23 years were 6.8%, 4.0%, 4.3%, and -0.7%, respectively, +1.1, +0.4, +0.1 pct compared with the same period. The increase in the sales expense ratio is mainly due to the company increasing the cost of brand upgrades and new product promotion. The company's net profit margin was 24.7% /+2pct in '23. The 24Q1 sales, management, R&D, and financial expense ratios were 7.4%, 4.2%, 4.5%, and -0.7%, respectively, +1.0, +0.2, +0.7, and -0.1 pct.
A new incentive plan and special talent shareholding plan were announced to further motivate employees. The company issued the “2024 Restricted Stock Incentive Plan”, which plans to grant 2.43 million restricted shares at one time to a total of 888 core managers and core executives at 53.74 yuan/share. The assessment targets are that the operating income or net profit for 2024, 2025, 2026, and 2027 is not lower than the average of the previous three fiscal years and 110% of the average of the previous two fiscal years, respectively. The company also announced the 2024 Special Talent Stock Ownership Plan. It is expected to further motivate employees and boost long-term confidence.
Looking ahead to 2024, the company will continue to focus on the three major strategies of smart ecology, new energy, and internationalization. It is expected that the converter will remain steady, the smart electrical lighting business will continue to grow, and new businesses such as no headlights and new energy will contribute to long-term growth. The company will focus on: 1) smart ecology: the electric connection business will continue to innovate around consumer needs and usage scenarios; the smart electrical lighting business will focus on home improvement consumption upgrades, accelerate the construction of a front-end ecosystem with smart headlights as the core, and vigorously promote the construction of decoration channel flagship stores and new retail models, which is expected to maintain good growth; 2) New energy business: the company's Weitao NEV gun and pile business will continue to optimize the existing product line; the energy storage business will comprehensively lay out the home storage ecosystem and further explore the development of domestic industrial and commercial storage product lines; 3) The company: internationalization: The main thing is to promote the new energy business to developed countries and quickly build household energy solutions covering optical storage and charging; businesses in emerging countries will continue to adhere to a multi-category development strategy centered on electric connectivity; and cross-border e-commerce will follow the pace of offline overseas business development to reach corresponding countries.
Investment advice: The company's revenue for 2024-2026 is estimated at 177.8, 200.8, 22.64 billion yuan, +13.3%, +13.0%, and +12.8% year-on-year, and the estimated net profit to mother is 44.4, 50.6, and 5.74 billion yuan, +14.8%, +13.5% year-on-year, corresponding PE is 23X, 21X, and 18X, maintaining a “buy” rating.
Risk warning: 1) Risk of increased market competition: Market competition in the field of civil electricians is full. Participants include many domestic companies as well as well-known international brands. At the same time, products such as converters, wall switches and sockets serve as important control entrances for future smart homes, and have also attracted many powerful new enterprises to join the competition. In the future, the civil electrician and lighting industry is expected to maintain a fierce competitive state. There is uncertainty about the evolution of the market competition pattern. If the company cannot adapt to the new competitive situation and consolidate and expand its original competitive advantage, it will face the risk of loss of market share.
2) Risk of new business development falling short of expectations: While consolidating and expanding its original competitive advantage, the company has developed emerging businesses such as charging guns/piles, headlights, circuit breakers, bathers, smart door locks, smart clothes dryers, and smart curtain machines around electric vehicle charging scenarios, but considering uncertain factors such as trends in related fields, market competition, and changes in consumer preferences, it is not ruled out that future new businesses will not meet expectations. 3) Risk of the impact of rising raw material prices on performance: The raw materials required by the company for production are mainly copper, plastic, components, hardware, packaging materials, electronic parts, etc., and there is a certain correlation between the purchase price of raw materials and the price of commodities such as copper and plastic. The purchase price of raw materials has a great impact on the company's main business costs.