Description of the event
The company released results for the third quarter. Q3 of 2022 achieved revenue/net profit/net profit attributable to the mother of 37.60/-0.30/ -0.30/ -0.78 billion yuan, a decrease of 27%/134%/252%; of these, Q3 achieved revenue/net profit/net profit attributable to the mother of 14.55/ 0.71/049 billion yuan, -27%/+60%/+28% over the same period last year.
Incident comments
Revenue is under pressure in the short term due to its own adjustments and the impact of external epidemics. Revenue fell 27% in Q3, and the decline narrowed from month to month. Consolidated and traditional business growth may be under pressure, mainly due to factors such as external epidemics while being in a period of self-adjustment.
Internal cost reduction and fee control gradually became effective, and profits improved. In Q3, gross margin increased by 3.7 pcts. This may be mainly driven by a recovery in gross margin from franchise channels. While the pressure on raw material costs is easing, internal cost reduction and efficiency measures have gradually paid off. In terms of expenses, the Q3 sales/management/R&D/finance expense ratio increased by 0.2/0.1/0.2/1.0pcts. Among them, the increase in the financial expense ratio was mainly due to the increase in bill discounting expenses, which led to a year-on-year increase of 18 million yuan in interest expenses in Q3. Overall cost control was good. Driven by an improvement in gross margin, Q3 returned to the parent/net non-net interest rate increased 2.6/1.4pcts at the same time.
The overall business layout continues to advance, firmly implement the “1+N+Z” urban development strategy, and strengthen terminal channel capabilities. Self-operated cities continue to invest, enhancing the overall competitiveness of brands in the region through direct-run stores+self-operated city franchise stores; at the same time, they continue to innovate franchise models. While attracting large businesses and opening large stores, they actively reduce channels, and the channel structure continues to be rich.
Operation during the adjustment period is under pressure for the time being. Focusing on “high-quality development” this year, profit release can be expected. Through R&D and innovation, the company introduced BIM technology into the home improvement industry chain and promoted the transformation of the home improvement industry with continuously upgraded digital capabilities; traditional businesses were gradually optimized to strengthen channel competitiveness. Furthermore, if the company introduces JD as a strategic investor, it may take advantage of JD's traffic and supply chain advantages to enhance the competitiveness of existing businesses. This year, the company will continue to focus on improving profitability by reducing costs and increasing efficiency, and profits are expected to be gradually released as the effects of raw material price reductions gradually become apparent on the reporting side. Net profit attributable to the mother for 2022-2024 is expected to be $0.70/275/313 million, corresponding to PE 52/13/12 times.
Risk warning
1. The recovery of the epidemic fell short of expectations;
2. Real estate sales fell short of expectations;
3. The progress of the company's strategic transformation is lower than expected.