occurrences
The company announced the results announcement for the first half of FY2023 (the performance period is April 1 to September 30, 2022): FY23H1 revenue of HK$9.53 billion/-8.0%, operating profit of HK$3.61 million/ -2.5%, net profit of HK$1,092 million/+10.5%, net profit after deduction of HK$922 million/ +1.5% (non-recurring profit and loss is HK$170 million in government subsidies), EPS (basic) was HK$0.28/ +11.4%. An interim dividend of HK15 cents will be paid per share.
Brief review
The domestic sales business was affected by the pandemic, and revenue was under pressure, and the pace of opening stores has slowed down. The domestic sales business FY23H1 generated revenue of HK$5.71 billion/-10.7%. By product: sofa revenue of HK$3.83 billion/ -11.5% (-7.4% of RMB caliber), estimated volume and price respectively -1.5% and -10%; mattress revenue of HK$1.51 billion/ +2.8% (RMB caliber +7.6%); iron frame revenue of HK$370 million/ -38.1%. By channel: offline store revenue of HK$4.19 billion/-9.7% (RMB caliber -5.5%), as of September 30, the number of offline stores was 6,230 (+262 compared to the end of March), the estimated average number of stores was +28.5% year-on-year, and the average number of goods picked up per store was -29.7% (average number of stores calculated on the basis of “(beginning of period+end of period) /2”); online revenue was HK$1.15 billion/-0.9% (RMB caliber +3.7%), and online growth slowed somewhat from month to month.
The export business was affected by rising sea freight rates during the period and sales volume declined. It is expected that as sea freight prices fall and customer inventories are gradually cleared, subsequent export business demand is expected to improve marginally.
The export business (excluding Home Group) FY23H1 had revenue of HK$3.23 billion/ +0.5%, including revenue of HK$2.56 billion/+0.1% in the North American market and HK$670 million/+2.1% in Europe and other regions. In the export business, sofa revenue was 2,870 million yuan/ +5.4% (accounting for 89.1%). Expected volume and price were -15.1% and +24.1% respectively. The sharp increase in average price was mainly due to the fact that the company's inbound container (CIF) product prices included sea freight costs. Sea freight prices rose sharply during the period, and actual shipping prices did not change significantly. High sea freight costs have led to an increase in sofa procurement costs for overseas customers. After increasing prices, terminal demand declined and inventory increased, which in turn affected purchasing volume. Home Group's revenue was HK$280 million/ -39.9%, mainly affected by declining revenue in Ukraine and other regions.
The decline in raw material prices led to an increase in gross margin, and the cost ratio was basically stable. The gross margin of the FY23H1 company is 38.8%/+2.6PCT, of which the gross profit margin for domestic sales is 39.9% /+4.2PCT, and the gross profit margin for export sales (excluding HG) is 37.6% /-0.1PCT. The increase in gross margin of domestic sales mainly benefits from a decrease in raw material costs (direct raw material costs -15% compared to the same period), and export sales also benefited from a decrease in raw material costs, but due to the increase in the proportion of offshore containers, gross margin was basically the same (the price of inbound container products included sea freight, and revenue was higher for the same quantity of products included in sales expenses, so the gross margin of inbound containers was higher). The FY23H1 sales and management expenses rates are 19.8% /+0.1PCT and 6.1% /+0.8PCT, respectively. The operating margin was 14.7% /+2.4PCT, the net interest rate was 11.8% /+2.1PCT, and the net interest rate after deduction was 9.9% /+1.0PCT.
Profit forecast: For the fiscal year ending March of that year, considering the weak consumption environment, the company's profit forecast was lowered. The company's FY23-FY25 revenue is expected to be HK$203.3, 224.3, and 25.55 billion respectively, compared with -5.4%, 10.3%, and 13.9%, respectively (previous values were HK$247.6, 2863, and HK$33.1 billion); Guimo's net profit was HK$24.0, 26.4, HK$3.01 billion, an increase of 6.7%, 10.1%, 14.1%, respectively (previous values were 26.0, 29.9, 29.9 billion) HK$3.44 billion); corresponding PE is 10.1x, 9.2x, 8.1x. Maintain a “buy” rating.
Risk warning:
Industry competition intensifies: Under external environmental influences such as declining real estate sentiment, relatively weak consumer demand under global inflation, and repeated epidemics, small and medium-sized home furnishing manufacturers and brands do not have the ability to compete with leading companies in terms of brands, channels, product quality, service, management, etc., they may adopt a low price dumping strategy in the short term, leading to a decline in the industry's average profit margin, which has an adverse impact on the company's production and operation.
Decline in real estate sales: There is a certain correlation between market demand in the upholstered furniture industry and the level of prosperity of the real estate industry. If the country's real estate regulation policy becomes stricter in the future, it may curb demand for immediate and improved home purchases, leading to a decline in consumer demand for home decoration brought about by new home renovations and second-hand housing renovations, which may adversely affect the company's product sales and performance.