Description of the event
The company released its report for the first quarter of 2024. 2024Q1 achieved revenue/net profit/net profit after deducting non-net profit of $523/0.59/0.53 billion, an increase of 32%/47%/54%.
Incident comments
The revenue side has performed well, and the independent brand & OEM business are in full swing. 2024Q1 achieved revenue of 523 million yuan, an increase of 32% over the previous year. The company's revenue performance was clearly superior to that of the home sales market. By category, we estimate that: 1) the company's own brands have performed brilliantly, with both online and offline channels contributing to rapid growth. Among them, offline channels including building materials and home appliance channels have accelerated store opening, and platforms such as the online channel Douyin have performed well; 2) the smart toilet foundry business is estimated to be stable overall, and the smart foundry overseas business logic is being implemented; 3) the traditional flushing component foundry business continues to pick up, and the improvement trend is expected to improve throughout 2024.
The recovery of flushing components and the acceleration of offline brands have led to an increase in profit margins. 2024Q1's profit growth rate was higher than the revenue growth rate, achieving net profit attributable to mothers/net profit deducted from 0.59,053 million yuan, an increase of 47%/54%, respectively. 2024Q1's gross margin increased by 5.0 pcts to 30.2%, while net interest rate/net profit margin increased 1.1/1.5pcts to 11.2%/10.2%. It is estimated that the main reasons for the significant improvement on the profit side are: 1) the profit margin of the company's traditional component foundry business is high, leading to the restoration of the overall profit pattern; 2) independent brands go hand in hand with online and offline. Among them, offline channels are speeding up the opening of stores, 2024Q1 has signed Li Xueqin as the company's brand ambassador. It is expected that the future will continue to increase investment in advertising and marketing to promote the improvement of the company's brand strength; 3) The scale effect of the decline in production capacity is gradually showing, driving the improvement of gross margin. The company's new production base with an annual output of 1.2 million sets of smart bathroom products has reached a ready state of use in 2023H2. The overall smart toilet production capacity is expected to rank among the highest in the industry, and the scale effect on the procurement side is gradually showing, driving production cost savings.
Based on the manufacturing advantages cultivated by OEM, the company attaches importance to research and development, and has emerged in the industry. In recent years, the company's R&D investment has stabilized at about 4%. As of March 31, 2024, the company and its wholly-owned subsidiaries have a total of 1,834 patents and 135 invention patents. The company is also one of the four sanitary ware companies that have won the title of “National Industrial Design Center”, and has leading manufacturing advantages. The company's OEM customers include leading domestic bathroom companies. Its own-brand products cover the full price range, mainly popular models. The new lightweight smart product S3 was launched after the Spring Festival this year, and the upgraded F30 of the popular product F3 was launched at the end of March. It is expected that in the future, it will continue to keep up with promotion activity points and continue to launch popular products with high cost performance and innovative features.
Independent brands are growing rapidly, opening up new space for manufacturing overseas. The global smart toilet market space is large, and I am optimistic that the company will grow with “own brand+OEM” two-wheel drive based on the advantages of smart toilet manufacturing. Domestic independent brands are moving from e-commerce to offline. Online growth is steady, offline store opening is accelerating, new home appliance channels are contributing increasing, and brand growth trends are excellent. The company's independent brand revenue is expected to continue to grow at a high rate in 2024. At the same time, there is plenty of room to go overseas. I am optimistic that the company will rely on the advantages of local industrial chain clusters and high-quality cost control capabilities cultivated over many years to manufacture overseas in potential markets such as the US and the Middle East. 2024 will be a year of acceleration in going overseas, and marginal contributions can be expected.
Profit forecast and valuation: The company is expected to achieve net profit of 2.7/3.2/380 million yuan in 2024-2026, corresponding to PE19/16/13X.
Risk warning
1. Overseas customer orders fell short of expectations; 2. Smart toilet promotion progress fell short of expectations; 3. The competitive landscape of the industry deteriorated dramatically.