Introduction to this report:
The company's performance is in line with expectations, gross margin continues to be optimized, and cost investment is increased to help build the brand. The company's OEM business is expected to grow steadily in 2024, and independent brands will increase channel construction with the support of strong product strength, and are expected to continue to grow at a high rate.
Key points of investment:
Conclusion: Maintain the 2.024-2025 EPS forecast of 0.71/0.85 yuan, and add the 2026 EPS forecast of 1.00 yuan. Considering the steady improvement in the company's OEM business and the smooth expansion of its own brand, refer to comparable company valuations, raise the target price to 14.20 yuan, and maintain the “gain” rating.
Incident: The company achieved revenue of 2,184 billion yuan/ +11.47% in 2023, and realized net profit of 219 million yuan/ +3.59%. 2024Q1 achieved revenue of 523 million yuan/ +32.30%, and realized net profit of 59 million yuan/ +47.15%. The performance was in line with expectations.
Continue to optimize gross margins and increase marketing to help build brands. The company's gross profit margin in 2023 was 29.53% /+4.72pct. Among them, the gross margins of water tanks and accessories/smart toilets and cover/same floor drainage products were +1.4pct/+6.5pct/+1.8pct, respectively. Smart toilets and covers became the driving force for profit growth. In 2023, the gross margin of the company's overseas business was 30.18% /+5.24pct, and the gross margin of domestic business was 29.32% /+4.57pct. Domestic and foreign sales collaborated to drive growth. The company's net interest rate in 2023 was 9.85% /-0.77pct, mainly due to the company's efforts to develop its own brand and increase in marketing and promotion expenses. In 2023, the company's sales expense ratio was 10.88% /+4.59pct. 2024Q1's gross margin and net margin reached 30.24% and 11.06%, respectively, up 5.02pct and 1.12pct year-on-year, respectively. The increase in the share of independent brands led to an improvement in profit.
The OEM business is booming, and independent brands are gaining momentum rapidly. The company continues to expand overseas OEM customers for smart toilets, and the boom in the traditional water fittings business is expected to gradually recover along with the recovery in external demand. The company's own brands cover the entire price range and use a hot sales strategy to drive share expansion. It is expected that the expansion of specialty stores and home appliance channels will continue to accelerate in 2024, and the volume of independent brands is expected to help increase profits.
Risk warning: Overseas customer expansion falls short of expectations; raw material prices fluctuate greatly.