Matters:
The company released the 2023 Annual Report and the 2024 First Quarter Report. In '23, the company achieved revenue of 19.21 billion yuan, +6.7% year on year; net profit to mother of 2.01 billion yuan, +10.7% year on year; deducted non-net profit of 1.78 billion yuan, +15.3% year over year. In 24Q1, the company achieved revenue of 4.35 billion yuan, +10.0% year on year; net profit to mother of 420 million yuan, +5.0% year on year; deducted non-net profit of 380 million yuan, +10.3% year on year.
Commentary:
Product matrix optimization enhances product strength and actively explores overseas channels. (1) By product, in 2023, the company's sofa/bed products/integrated products/custom furniture/mahogany furniture/information technology services/other revenue was 93.5/41.0/30.3/8.8/0.5/8.7/160 million yuan, respectively, +4.2%/+15.4%/+15.6%/-21.8%/+5.5%/+21.0%. The gross margins of the company's sofa/bed products/integrated products/custom furniture/mahogany furniture/mahogany furniture/IT services/other were 35.8%/37.1%/27.5%/14.3%/84.3%/4.1%, respectively, +3.1/+2.0/-0.2/-5.6/-3.0/-0.8/+2.5pct, respectively. Among them, mattress R&D and manufacturing cost reduction results are obvious, and the 2023 customized product procurement terminal will drive cost reduction and efficiency, which is expected to benefit the gross profit side in the future. (2) Looking at the split price, the sales volume/average price of the company's sofas in 2023 was +3.0%/+1.2%, respectively, and the sales volume/average price of the company's bedding products in 2023 was +13.7%/+1.5%, respectively. The company focuses on both online and offline. By constructing a serial structural matrix for leather sofas, the online layout lays out medium and high-end products, and the offline stepped layout increases the added value of the products, thereby increasing the added value of the products, thus increasing the volume and price of the two major categories of sofas and beds. (3) By region, the company achieved domestic and overseas revenue of 10.9.4/7.52 billion yuan respectively in 2023, +6.1%/+6.8%. Both domestic and foreign markets achieved steady growth. In 2023, the company actively developed new overseas customers, improved the channel structure, and built a benchmark store in India, marking a key step in the internationalization of free brands.
Reducing costs and increasing efficiency boosts gross profit margins, showing resilience on the profit side. 1) In 2024, the company's annual gross margin increased by 2.0pct to 32.8%. The company plans to accelerate the commissioning of the Vietnamese factory and enhance its basic operating capacity in 2024, while deepening the implementation of KBS work at domestic bases, which is expected to further benefit the optimization of the gross profit side. On the cost side, in '23, the company achieved a sales/management/R&D/finance expense ratio of 17.5%/1.8%/1.4%/-0.01%, compared to +1.1/-0.2/-0.3/+0.7pct. It is expected that channel restructuring and joint marketing activities will boost the sales expense ratio. Taken together, the company's net profit margin of +0.2pct to 10.5%. 2) The 24Q1 company achieved a gross profit margin of 33.1%, +0.9pct year on year; the sales, management, R&D and financial expenses ratio for the period was 17.4%/3.3%/1.4%/-0.2%, respectively, and +0.5/-0.2/-1.3 pct year on year. Taken together, the company achieved a net profit margin of 9.8%, -0.3 pct year-on-year.
The leading software home appliance, with a steady pace of internal and external expansion, maintaining a “strong recommendation” rating. In 2023, the company achieved structural adjustments through the “channel evolution+purification” strategy, achieved breakthroughs in the shopping center channel, and established partnerships with many large property chains. It is expected that channel transformation dividends will be released in 2024. Furthermore, in the export sales sector, the company has hedged operating risks through Vietnam and Mexico factory layout+high mattress category growth and customer structure optimization, and has achieved steady growth in overseas revenue in 2023, and can be expected to continue to grow in this sector in the future.
Considering that downstream demand is still uncertain, we expect profit of 22.76/25.75/2,884 billion yuan in 24/25/26 (the value was 25.00/2,903 billion yuan before 24/25), and the corresponding PE is 13/12/11X. Referring to comparable company valuations, the company was given a 24-year PE of 18X, corresponding to a target price of 49.8 yuan/share, maintaining a “strong” rating.
Risk warning: Macroeconomics affects demand; risk of fluctuations in raw material prices; channel expansion falls short of expectations, etc.