Incident: The company announced results for the first half of fiscal year 2023, achieving revenue of HK$9.533 billion, down 7.96% year on year; Guimu's net profit was HK$1,092 million, up 10.52% year on year.
The decline in raw material prices has led to an improvement in the company's profitability. In terms of gross margin, the company's gross margin was 38.8%, an increase of 2.6 pct over the previous year, mainly because raw material prices declined, and the average unit costs of steel and chemicals decreased 8.5% and 15.8%, respectively. Among them, the gross margins of China/North America/Europe and other overseas markets/Home Group are expected to be 39.9% /41.8%/21.3%/22.5%, respectively, with year-on-year changes of +4.2 pct/+0.7 pct/-2.9 pct/-3.1 pct, respectively.
In terms of expense ratio, the sales expense ratio was 19.8%, an increase of 0.1 pct over the previous year; the management expense rate was 6.1%, an increase of 0.8 pct over the previous year. In terms of net interest rate, the net interest rate was 11.8%, an increase of 2.1 pct over the previous year.
The domestic sales market declined year-on-year, and mattress categories and e-commerce channels performed steadily. In the first half of fiscal year 2023, the company's domestic sales revenue was HK$5.34 billion (excluding iron frames), a year-on-year decrease of nearly 8%, and the RMB caliber fell about 4% year-on-year (mainly because the pandemic repeatedly affected the decline in offline consumption & real estate sentiment). In terms of categories, the sofa category is expected to reach over HK$3.8 billion, a year-on-year decrease of about 11%, and the RMB caliber a year-on-year decrease of about 7%; the mattress category is expected to reach about HK$1.5 billion, an increase of nearly 3% over the previous year, and the RMB caliber is expected to increase by more than 7% year over year. In terms of channels, the company's store layout expanded steadily, with offline stores reaching about HK$4.2 billion, a year-on-year decrease of nearly 10%, and the RMB caliber falling about 6% year-on-year. As of September 30, the number of company brand stores reached 6,230 (excluding acquisitions such as Style, Prini, etc.), with a net increase of 262, which is expected to increase by around 520 throughout the year. The e-commerce platform business continues to gain strength and actively lays out new retail business. Online e-commerce achieved about HK$1.15 billion, a slight decrease of about 1% year on year, and RMB volume increased by about 4% year on year.
The export market remains stable, and the production capacity layout supports growth. In North America, the company achieved HK$2,564 million, up 0.1% year on year; in European and other overseas markets, the company achieved HK$670 million, up 2.1% year on year; on the Home Group side, the company achieved HK$279 million, down 39.9% year on year, mainly because the Group's production capacity in Ukraine was affected by the Russian-Ukrainian crisis.
The company's Vietnam & Mexico plant layout supports overseas business expansion. The Vietnam plant was completed in August 2019, with a design capacity of 3,500 cabinets/month; preparations for the Mexican plant began in 2022, and it is expected that it will continue to expand its market share in the US market in the future.
Investment advice: The company is a leading soft home furnishing enterprise. The category expansion continues to expand, the channel layout is progressing steadily, and global production capacity construction helps future growth. It is expected that the company will achieve basic earnings per share of HK$0.64/ 0.73/0.84 HKD/share in 2022/23/24. The corresponding PE is 11X/9X/8X. The corresponding PE is 11X/9X/8X, covered for the first time, and given a “recommended” rating.
Risk warning: risk of economic growth falling short of expectations; risk of increased market competition.