Event: the company announced that in the third quarter of 2022, the operating income in the first three quarters of 2022 was 3.76 billion yuan, down 27.19% from the same period last year; the net profit was-29.7298 million yuan, down 134.1% from the same period last year. In the third quarter alone, the operating income was 1.455 billion yuan, down 26.74% from the same period last year, and the net profit was 71.0082 million yuan, an increase of 59.92% over the same period last year.

The overall situation of the industry is grim, and the company's performance has been adjusted at the bottom. In the third quarter alone, the company's operating revenue fell nearly 27% from a year earlier, narrowing the decline compared with the second quarter (- 31%). It is speculated that the main reason for the significant pressure on revenue is: (1) the transaction of offline orders is blocked due to the repeated epidemic situation in various places in the third quarter; (2) the company is facing the challenges of the external environment, such as repeated epidemic situation and shrinking orders in the home decoration industry, actively explore the certainty of internal growth, take the initiative to adjust business thinking, shrink the scope of business operations such as self-assembly, resulting in continuous pressure on overall revenue compared with the same period last year. The company strengthens the capacity of dealers, continues to explore the business expansion of multiple channels such as franchise stores and integrated stores, at the same time, relies on digital strength to create a replicable, low-cost integrated service model, and promotes the process of integration business industrialization. We look forward to the steady repair after the bottom-building adjustment of the company's performance.

Profitability improved in the third quarter, and the focus on high-quality development is beginning to show. In 2022, the company began to focus on "high-quality development", through strengthening the core business growth, process reengineering and other ways to reduce costs and efficiency, and achieved results in the third quarter. In the third quarter of 2022, the company achieved a gross sales margin of 14.39%, an increase of about 3.5pct over the same period last year, which is presumed to be mainly due to the continuous promotion of cost-side reduction and efficiency and cost-side marketing launch control. The financial expense rate in the third quarter was 0.93%, an increase of about 1pct over the same period last year, mainly due to the increase in interest charges arising from bill discounting. In the third quarter, the company achieved a net interest rate of 4.88%, an increase of about 2.6pct over the same period last year, and its profitability was repaired.

The growth of the whole assembly business is expected, and the omni-channel deepening operation lays the foundation for expansion. On the product side, BIM enables the assembly cloud and self-assembly business, and the company relies on the advantage of information development to promote the whole process standardization and digitization of the assembly business. In addition, the company has an insight into the younger trend of the main force of home consumption, pays close attention to the liberalization and personalized characteristics of home decoration demand in the new era, and launches a "random choice" whole-house customized package, which is based on Shangpin House with more than 5, 000 SKU to realize the free matching of the whole house design style, thus injecting new vitality into the development of customized home retail channels. On the channel side, the company firmly implements "1+N+Z"

The urban development strategy is to display brand services with limited super stores, assist N dealers to expand their business in Class Z multi-channel in the dimensions of logistics and delivery, and at the same time strengthen cooperation with smart home, property and other types of enterprises. the front household decoration consumer demand contact, the deepening of all-channel operation lays the foundation for business expansion.

Combined with the impact of the epidemic and the company's channel expansion, the assumptions of individual store pick-up volume, store number growth and gross profit margin are appropriately lowered, and combined with the forecast that the company's net return profit in 2022-2024 will be 0.05 trillion yuan respectively (previously predicted to be 1.42 billion yuan in 2022-2024), the target price of DCF will be 22.46 yuan, maintaining the "overweight" rating.

Risk hint

The completion of the real estate is not as expected; the competition in the industry is intensified; the risk of the transformation of the joining channel and the expansion of the assembly business is not up to expectations.