The 2023 results exceeded our expectations. The 1Q24 results were in line with our expectations. The company announced 2023 and 1Q24 results: 2023 revenue of 2,683 million yuan, up 26% year on year, net profit to mother of 590 million yuan, up 30% year on year, net profit after deducting non-return to mother net profit of 566 million yuan, an increase of 64% year on year, which exceeded our expectations, mainly due to the replacement demand of downstream small and medium-sized manufacturers exceeding expectations. 1Q24's revenue was 690 million yuan, up 17% year on year, and net profit to mother was 142 million yuan, up 15% year on year. 1Q24 results were in line with our expectations.
Profitability increased significantly in 2023. Revenue from edge banding machines, CNC drills, machining centers, and panel saws increased 26%/43%/15%/25% year-on-year to 10.99/5.53/4.04/283 million yuan respectively in 2023. The comprehensive gross margin increased by 3.0 ppt to 33.3% year on year in 2023, mainly due to falling raw material prices and enhanced scale effects, the cost ratio for the period decreased by 1.6 ppt year on year, and deducted non-net interest rate increased by 4.9 ppt to 21.1% year on year. In 1Q24, the company's gross profit margin and net margin decreased by 1.3/0.3ppt to 30.8%/20.5% year-on-year.
Cash flow remains excellent, and dividend rates have increased. The net cash inflow from the company's operating activities in 2023 was 702 million yuan, an increase of 281 million yuan over the same period last year. The net inflow for 1Q24 was 144 million yuan, and the net inflow for the same period last year was 192 million yuan. In 2023, the company's cash dividend was 255 million yuan, and the dividend rate increased to 43%.
Development trends
The pattern of domestic furniture factories is scattered, replacement demand is rising, and domestic substitution continues. In 2023, small and medium-sized furniture manufacturers increased capital expenses for equipment replacement, which led to an increase in demand from domestic equipment companies. Custom furniture companies have shown the characteristics of a highly customized and decentralized market. The performance improvement of domestic equipment in the past two years has further reduced the market share of foreign-funded equipment, and domestic manufacturers represented by Hongya have become the better choice for furniture companies. Looking back, although the real estate industry prioritizes room for total demand growth, we believe that demand for consumption upgrades, equipment upgrades, and domestic replacement is expected to support the continued growth of leading equipment manufacturers.
Intensify overseas market development efforts. In 2023, the company's export business revenue was 812 million yuan, an increase of 6% over the previous year. Export revenue has doubled from 371 million yuan in the past 5 years. Currently, the company has achieved large-scale revenue in Russia, Southeast Asia and other places. We expect the company to continue to step up efforts to expand overseas markets in the future. We estimate that the global woodworking machinery market is about 40 billion yuan, and the overseas market is more than twice the size of the domestic market. We believe that there is still plenty of room for the company to explore the international market in the future.
Profit forecasting and valuation
Maintain an outperforming industry rating. Considering that downstream replacement demand exceeded expectations, we raised our 2024 profit forecast by 14% to 687 million yuan, and introduced a 2025 profit forecast of 782 million yuan. The company is currently trading at 13x/12x 2024e/2025e P/E. Considering the profit increase, the target price was raised 20% to 26.38 yuan, corresponding to 16/14x 2024e/2025e P/E, with 22% upside.
risks
Real estate sentiment is sluggish; industry competition is intensifying; overseas market fluctuations are intensifying.