The full-year results were higher than the median forecast, and Q1 revenue increased significantly. In 2023, the company achieved revenue of 9.06 billion yuan, +1.63% year-on-year, net profit of 690 million yuan, +54.7% year-on-year net profit without return to mother, +68.3% year-on-year, EPS was 0.84 yuan/share, higher than the median value of the previous performance forecast. Revenue was generally steady. The decoration materials business and the whole house customization business both showed a certain year-on-year increase. At the same time, asset impairment losses decreased by 120 million yuan year on year. The performance side was further improved, and a dividend rate of 66.1% was announced in 2024 Mid-term dividend planning. 2024Q1 achieved revenue of 1.48 billion yuan, +33.4% year on year, net profit of 890 million yuan, +18.8% year on year, net profit after deducting non-return to mother of 80 million yuan, +38.3% year over year. The revenue growth was clearly mainly due to an increase in the share of Class A revenue.

Boards accelerated the sinking of townships and the expansion of small B channels, and whole-house customization bucked the trend. By business and product, in 2023, the company's decoration materials/custom home furnishing business achieved revenue of 68.56/21.17 billion yuan, +3.2%/-2.8%. Among them, the revenue of board/board brand royalties and other decorative materials in the decoration materials business was 4.434/4.32/1.99 billion yuan, respectively, -1.1%/+14.3%/+11.7% YoY; in the custom home furnishing business, Whole-house Customization/Yufeng Hantang's revenue was 5.96/1,147 billion yuan respectively, +15.5%/-10.5% YoY. Continuing to grow against the trend, it was also announced that it plans to purchase the original whole-house customization business production and leasing plant, better layout whole-house custom manufacturing, and enhance overall competitiveness.

Expense rate optimization is obvious, and centralized payments at the pace of payments affect Q1 cash flow. The 2023 comprehensive gross profit margin was 18.4%, +0.24pp year on year, with a period cost ratio of 6.8%, and -1.7pp, of which the sales/management/finance/R&D expenses ratio was -0.4 pp/-0.9pp/ -0.4pp/-0.03pp. The reduction in management expenses was mainly due to strengthened internal cost control and employee remuneration decreased by 13 million yuan year on year, while equity incentive expenses decreased by 69 million yuan year on year. Net operating cash flow in 2023 was 1.91 billion yuan, +104.6% year over year. The control of working assets was strengthened during the reporting period, and cash flow increased significantly over the same period last year. 2024Q1 gross profit margin was 17.9%, year-on-year -4.9 pp/month-on-month +0.2pp, and the period expense ratio was 8.6%, year-on-year -4.7 pp/month-on-month. The year-on-year changes in gross margin and expense ratio were mainly due to the impact of the AB revenue structure. The net operating cash flow of 2024Q1 was -800 million yuan, and -80 million yuan for the same period last year, mainly due to the impact of the pace of payments on centralized payments.

Risk warning: Real estate recovery falls short of expectations; raw material prices have risen sharply; channel expansion falls short of expectations. Investment suggestions: steady development of multiple channels, highlight the value of high dividends, maintain “buy” rating companies to accelerate channel decline, vigorously expand small B channels such as furniture manufacturers and home improvement companies, continue to improve the multi-channel layout, and look forward to the steady expansion of peripheral regions and the driving of small B channels on the board business, as well as breakthroughs in the growth of customized home furnishing business based on board advantages. At the same time, the company announced a shareholder return plan for the next 3 years, with a cash dividend rate of not less than 50%, highlighting the shareholder return advantage. EPS is expected to be 0.90/1.03/1.17 yuan/share in 24-26, corresponding PE is 11.8/10.3/9.1x, maintaining a “buy” rating.