The company achieved operating income of 5.32 billion yuan in 2023, the same as the previous year, and achieved net profit of 570 million yuan to mother, a year-on-year decrease of 1.44%. 24Q1's revenue and net profit to mother declined by 12.3% and 49.5%, respectively, below market expectations (mainly due to the decline in profits of overseas subsidiaries). The company plans to pay a dividend of 330 million, with a dividend rate of about 58.3%. By the end of 2023, the company's operating cash flow increased 117% year on year.
The home textile business maintained steady growth, and the US business dragged down the 2023 results. By channel, revenue from online, direct, and franchise channels increased by 8.6%, 31.7%, and -3.9%, respectively, in 2023, while US business revenue fell 11.6% year on year. The company's US business entity is Lexington, an overseas wholly-owned subsidiary. The main products are high-end customized furniture. The business cycle is long, and it usually takes 6-9 months from order placement to revenue confirmation. In recent years, due to factors such as declining overseas real estate cycles, high interest rates on US dollar deposits and loans, inflation, and rising labor costs, the overseas furniture business has shown significant performance fluctuations since the second half of 2023. However, the company's main home textile business has continued to grow steadily, with revenue and profit increasing by about 3.4% and 10%, respectively.
In 2023, the gross margin of the company's online, direct management and franchise channels increased by 1.7 pct, 0.7 pct, and 0.72 pct, respectively, and the gross margin of the US business decreased by 3.4% year on year. The home textile business, especially online channels, continued to rise, showing the company's good results in brand promotion and product structure optimization.
In terms of R&D, Rollei Research Institute was officially upgraded to Rollei Super Soft Research Institute during the reporting period. In the future, it will focus more on Rollei's ultra-soft technology positioning and strengthen its R&D competitiveness. In terms of production capacity, while increasing investment in the intelligent transformation of existing factories, the company is also increasing the expansion of self-made production capacity year by year. Construction of the first phase of the 2023 Smart Industrial Park plot has already started according to the plan, and it is expected to be gradually put into use from the end of 2024 to 2025.
As of 2024Q1, CA Fabric Investments, a subsidiary of Carlyle Investment Group, currently holds 5.96% of the company's shares, a decrease of 1.99 pct compared to the end of 2023. The holdings reduction was mainly carried out through bulk transactions to maximize the impact on stock price fluctuations.
According to the annual report and quarterly report, we adjusted the profit forecast and introduced the 2026 profit forecast. We expect earnings per share for 2024-2026 to be 0.67, 0.77, and 0.9 yuan (previously 0.83 and 0.95 yuan for 2024-2025), respectively. Referring to comparable companies, a PE valuation of 15 times 2024 was given, corresponding to a target price of 10.05 yuan, to maintain the “gain” rating.
Risk warning: Weakening terminal consumer demand, the impact of the cooling of the US real estate market on the furniture business, and the short-term impact of Carlyle's possible reduction in holdings.