Revenues maintain rapid growth, performance is in line with expectations

Gujiajiao 603816, the stock

Event: The company achieved operating income of 6.665 billion yuan in 2017, a year-on-year increase of 39.02%, and a net profit of 822 million yuan, a year-on-year increase of 43.02%. The net profit after deduction was 610 million yuan, a year-on-year increase of 19.88%. Among them, the Q1/Q2/Q3/Q4 single-quarter revenue growth rate was 53.6%/55.5%/40.5%/17.5%; the net profit of the returning mothers was 34.1%/51.7%/57.2%/30.3%.

The increase in raw materials affects the gross profit margin, and the optimization of expenses has led to a significant increase in the net interest rate. In both regions, both domestic sales and export sales achieved rapid growth. The growth rate of revenue in 17 years reached 38.6% and 40.5% respectively. Affected by the sharp increase in prices of raw materials such as TDI, fabrics and steel wire, the company's gross profit margin for the year was 37.26%, down 3.18PP year-on-year. The gross profit margin of the main category sofas, ancillary products and soft beds and mattresses decreased by 4.52pp/4.22pp/ 4.19pp. In terms of regions, domestic sales due to earlier price increases increased by 0.92 percentage points year-on-year to 42.36%; however, due to the slower implementation of price increases due to the B-end customers, the gross profit margin fell by 10.32PP to 24.01%, and exchange losses occurred. 47.35 million yuan. At present, the company's main raw material prices have stabilized, and the effect of export price increases will gradually appear in 18 years. It is expected that the gross profit margin will be repaired. In the past 17 years, the company relied on excellent management capabilities. On the basis of maintaining rapid sales growth, the sales expense ratio and management expense ratio decreased by 1.1 and 0.5 percentage points respectively, driving the company's net profit margin to increase by 0.53pp to 12.47%. In 2017, the company included government subsidies of 172 million, effectively damaging the impact of the company's gross profit, and led to a net profit of more than 40%. This part of the subsidy is directly related to revenue. The company expects government subsidies to increase as the company continues to grow its revenue growth trend.

Channel and category expansion continued to advance. The company's sales channels are continuously optimized. First, the expansion is closely related to the opening of traditional furniture stores. Second, the channel structure is more important for major stores, flagship stores and single-product integrated stores. The third is to try to enter the department store to diversify. The company's sales channels. In 2017, the number of direct sales and franchise stores continued to grow, and the total number of stores increased by more than 400 year-on-year, with a total of more than 3,500. It is expected that the company will continue to maintain 400-500 new stores every year in the next three years, and the revenue growth will be sustainable. In terms of category expansion, the company sells products mainly on sofas. In recent years, it has been vigorously expanding its category and customizing its furniture business. Soft bed and mattress revenues have exceeded 50% in the past five years, and the total revenue has increased from 5.8% in 2012 to 13.3% in 2017. The richness and efficiency of the products have increased the proportion of the company's integrated sales, and the unit price has been further improved. In 2017, the proportion of sales of accessory products has increased to 30%. The company's custom furniture and Lazyboy have also achieved rapid growth.

Manufacturing and management efficiency continues to increase. The company continued to promote the lean improvement of the production line. In 17 years, it organized 107 improvement week activities, optimized and improved about 930 points, and promoted the flow within the process. The hourly efficiency of assembly lean line increased by 21% compared with 2016; further promoted comprehensive distribution, through material information. On-line and semi-finished product information integration, push distribution and pull system monitoring management for core components and materials. In terms of supply chain management, the management of the pull-type plan has been realized, the customer satisfaction rate has reached 95%, and the number of semi-finished products in the end of the year has been reduced by 24% year-on-year; the company has comprehensively promoted TMS (Transport Management System), which has improved the level of logistics information management; Unified training for management, improve supplier warehouse management, service delivery level, and enhance dealer supply chain capabilities.

Capacity expansion will gradually land, and the escort company's business expansion. In addition to the company's existing two production bases in Xiasha, Zhejiang and Shenzhou, Hebei, the bases under construction include Huazhong Huanggang Base, Jiangdong Base and Zhejiang Jiaxing Base. The company's existing annual production capacity is 1.57 million standard sets. It is expected that the new production capacity will gradually land from 2018 and will be fully put into production by 2022. By then, the company will have an annual production capacity of 3.85 million standard sets and 4 million square meters of custom furniture. The expected completion of production capacity will strengthen the business expansion of the company.

Earnings forecasts and investment advice. The EPS of 2018-2020 is expected to be 2.57 yuan, 3.24 yuan, and 4.08 yuan, respectively, corresponding to PE of 24 times, 19 times and 15 times. With reference to the valuation of the same industry, we give the company 30 times PE in 18 years, with a target price of 77.1 yuan, maintaining a “Buy” rating.

Risk warning: the risk of large fluctuations in raw material prices, the risk of poor terminal sales, government subsidies less than expected, and the release of capacity is less than expected.