Incident: The company released its 23 annual report and 24 quarterly report, and achieved revenue of 13.51 billion yuan in 23, an increase of 4.1% over the previous year. Net profit to mother was 1.30 billion yuan, a year-on-year decrease of 21.1%; net profit to mother was 9.6%, a year-on-year decrease of 3.1 pct. Net profit after deducting non-return to mother was 1.23 billion yuan, down 27.5% year on year; net profit margin after deducting non-return of mother was 9.1%, a decrease of 4.0 pct year on year. The company reduced part of the rent and management fees for eligible merchants, leading to a phased decline in rental income and management fee income with high gross profit levels, and the company's net profit to mother declined.
Looking at a single quarter, 23Q1-24Q1 achieved revenue of 32.5/31.6/33.4/37.7/3.14 billion yuan, a year-on-year change of +4.5%/-0.7%/+6.2%/+6.1%/-3.4%. Net profit attributable to mother was 4.5/4.1/2.8/1.5/350 million yuan respectively, a year-on-year change of -10.2/-24.2/-41.3/+31.6/-22.9 pct.
The company's consolidated gross margin in '23 was 34.1%, a year-on-year decrease of 10.7pct. The cost rate for the period was 24.1%, a year-on-year decrease of 0.4 pct. Among them, the sales/management/ R&D/ finance ratio was 11.8%/4.3%/0.3%/7.7%, respectively, with a year-on-year change of +0.6pct/+0.1pct/0.0pct/-1.1pct. In 24Q1, the company's consolidated gross margin was 36.7%, a year-on-year decrease of 2.5 pct. The cost rate for the period was 20.6%, an increase of 0.4 pct over the previous year. Among them, the sales/management/R&D/finance rate was 8.0%/4.3%/0.3%/8.0%, respectively, with a year-on-year change of +0.4pct/+0.3pct/+0.1pct/-0.3pct.
By product, leasing and its management business/product sales/franchise management/renovation/loan factoring/ other businesses achieved revenue of 64.3/55.6/4.1/0.6/550 million yuan respectively, a year-on-year change of -11.2%/+31.7%/-19.1%/+12.7%/-26.1%/+22.1%, accounting for 47.6%/41.1%/3.8%/3.0%/4.0%, respectively.
Home stores are transforming towards smart home experience centers. By the end of '23, the number of smart home brands in the company's home furnishing store had reached 1,357 million square meters, with sales exceeding RMB 161 billion. There were 86/328 direct-run stores and franchise stores respectively, a total of 414, a decrease of 14 compared to the end of '22.
The company also has 5 modern department stores, 4 shopping malls and 173 supermarkets of various types. Among direct-run stores, 69 rental stores and 17 own shopping malls achieved a total revenue of 6.23 billion yuan, a year-on-year decrease of 10.0%; the average actual operating income per unit area was 1468.4 yuan, a decrease of 2.0% over the previous year.
The three digital transformation tools are more mature, and the digital transformation has borne fruit. By the end of '23, the total number of online stores in Dongwo reached 934, an increase of 173.1% over the previous year. There were more than 100,000 registered merchants, an increase of 101.33% over the previous year. The number of registered users exceeded 25 million, an increase of 95.48% year over year. The average monthly activity was 3.9051 million, up 316.67% year over year. Platform transactions (GMV) reached 97.4 billion yuan for the whole year, an increase of 173% over the previous year.
In fact, the number of registered users of designers worldwide exceeded 14.77 million, an increase of 19% over the previous year. The number of design cases exceeded 32.686 million, an increase of 18.5% over the previous year. The number of models exceeded 12.44 million, a year-on-year increase of 27.4%. Smart Home actually opened 57 new stores in 2023, achieving annual sales exceeding 4.4 billion yuan, an increase of 58.4% over the previous year.
Profit forecast and rating: We expect the company's net profit for 24-25 to be 16.7/1.80 billion yuan, an increase of 28.8%/7.5%. The current closing price corresponds to PE 10.97 and 10.24 times, respectively. Referring to comparable companies, PE was given 13-15 times in 24 years, corresponding to a reasonable value range of 3.54-4.09 yuan/share, and given a “superior to the market” rating.
Risk warning: Terminal demand falls short of expectations, declining real estate cycle, risk of traffic fragmentation, new business development falls short of expectations.