Results Review

2024 results in line with market expectationsKinlong Hardware Products announced its 2024 results: Revenue fell 15% YoY to Rmb6.6bn, and net profit attributable to shareholders fell 72% YoY to Rmb89.99mn. In 4Q24, revenue fell 23% YoY to Rmb1.73bn and attributable net profit dropped 68% YoY to Rmb57.1mn, the results largely in line with market expectations.

Weak demand: Due to falling demand from completed real estate projects, the company's product sales faced pressure in 2024. Revenue from door and window hardware, door control, and door and window accessories fell 19%, 12%, and 12% YoY to Rmb2.9bn, Rmb542mn, and Rmb367mn. Revenue from engineering products improved slightly, with revenue from curtain wall components and stainless steel guardrail products rising 11% and falling 4% to Rmb441mn and Rmb193mn. As for new categories, revenue from home furnishings and other architectural hardware fell 22% and 10% YoY to Rmb1.08bn and Rmb1.01bn due to falling demand from furnished presale homes.

Domestic revenue under pressure; overseas revenue accelerating: In2024, the firm's domestic revenue fell 15% YoY to Rmb5.8bn, and overseas revenue rose 15% YoY to Rmb883mn, with the proportion of overseas revenue rising to 13%.

Gross margin remained stable: In 2024, the firm's blended gross margin fell 0.6ppt YoY to 31.65% (excluding tax and surcharges, the same below), with gross margins of door and window hardware, home furnishing hardware, and other building hardware falling 0.3ppt, 1.0ppt, and 0.9ppt to 40%, 29%, and 18%.

Expenses remained unchanged and expense ratio rose: Due toweakening economies of scale, selling, G&A, and R&D expense ratio rose 0.5ppt, 0.8ppt, and 0.3ppt YoY (corresponding expenses down 12%, 1%, and 9% YoY). The firm strengthened its personnel management in 2H24, and its sales headcount declined 12% YoY to 5,340 at end-2024 (total headcount down 13%).

Net margin under pressure: Net margin fell 2.8ppt YoY to 1.4% in 2024 due to falling gross margin, rising expense ratio, and rising credit impairment (+Rmb47.55mn YoY).

Cash flow remained healthy: Thanks to the firm's efforts to improve cash flow and accounts receivable, the cash-to-revenue ratio stayed high at 105% in 2024, with receivables down Rmb366mn YoY. But payables dropped Rmb337mn YoY and net operating cash flow fell 21% YoY to Rmb394mn as the firm increased cash payment ratio.

The firm announced a dividend of Rmb0.2 per share for 2024.

Trends to watch Domestic demand still under pressure; overseas markets recovering.

Looking ahead, we believe the firm is accelerating organizational restructuring and improving employee efficiency. If housing completions and home decoration demand recover, we expect revenue and net profit to improve substantially. In addition, we believe the firm has expedited its expansion into Belt and Road markets such as Southeast Asia due to solid overseas demand, which may become a new growth driver.

Financials and valuation

Due to weak demand, we lower our 2025 net profit forecast by 34% to Rmb252mn and introduce 2026 net profit forecast of Rmb362mn. The stock is trading at 32x 2025e and 22x 2026e P/E. We maintain an OUTPERFORM rating and target price of Rmb27 (given the market’s higher risk appetite), implying 38x 2025e and 26x 2026e P/E, offering 20% upside.

Risks

Greater-than-expected pressure on demand from housing completions; disappointing increase in employee productivity; disappointing expansion into new regions.