Event
The company announced the results of FY2023 for the first half of the fiscal year (April 1-September 30, 2022): FY23H1 revenue of HK $9.53 billion /-8.0%, operating profit of HK $1.42 billion / + 9.9%, net profit of HK $1.09 billion / + 10.5% of FY23H1 (basic) of HK $0.28 / + 11.4%. Pay an interim dividend of HK15 cents per share, with a dividend ratio of 54%.
Brief comment
The domestic business has been affected by the epidemic, revenue has been under pressure, and the pace of opening stores has slowed down. Domestic sales business FY23H1 revenue of 5.71 billion Hong Kong dollars /-10.7%. From a product point of view: sofa revenue of HK $3.83 billion /-11.5% (RMB caliber-7.4%), estimated volume and price-1.5% and-4.8% respectively; mattress revenue HK $1.51 billion / + 2.8% (RMB caliber + 7.6%); iron frame revenue HK $370 million /-38.1%. From a sub-channel point of view: offline store revenue of 4.19 billion Hong Kong dollars /-9.7% (RMB caliber-5.5%), as of September 30, the number of offline stores is 6230 (compared with + 262 at the end of March); online revenue is 1.15 billion HKD /-0.9% (RMB caliber + 3.7%).
The increase in sea freight during the export business period affects the decline in sales, and it is expected that with the fall in sea freight prices and the gradual clearance of customer inventory, the demand for subsequent export business is expected to improve marginally.
Export business (excluding Home Group) FY23H1 revenue of HK $3.23 billion / + 0.5%, including HK $2.56 billion / + 0.1% in North America and HK $670 million / + 2.1% in Europe and other regions. In the export business, sofa revenue is HK $2.87 billion / + 5.4% (accounting for 89.1%), and the volume and price are expected to be-15.1% and + 24.1% respectively. The increase in average price is mainly due to the fact that the price of CIF products includes sea freight charges, which rose sharply during the period. Home Group revenue of 280 million Hong Kong dollars /-39.9%, mainly affected by revenue decline in Ukraine and other regions.
The reduction in the price of raw materials leads to an increase in gross profit margin. When the increase in government subsidy and financial revenue is similar to the provision for litigation expenses in advance, the operating profit margin is similar to the improvement in gross profit margin. FY23H1's gross profit margin is 38.8%/+2.6PCT, in which domestic sales gross margin 39.9%/+4.2PCT, export (excluding HG) gross margin 37.6%/-0.1PCT.
The increase in gross profit margin in domestic sales mainly benefited from lower prices such as steel and chemicals (direct raw material costs-15% compared with the same period last year). Exports also benefited from lower raw material costs, but the gross profit margin was dragged down due to the increase in the proportion of offshore containers. resulting in gross profit margin basically flat.
The FY23H1 sales, management and financial expense rates are 19.8%/+0.1PCT, 6.1%/+0.9PCT and 0.7%/+0.4PCT, respectively, and the total expense rate is 26.6%/+1.4PCT. The increase in the management expense rate is mainly due to the advance provision of HK $8453 (0.9 per cent of revenue) for management expenses for Raffel patent litigation matters in the United States. Government subsidy and financial management income were HK $170 million / + 107.4% and HK $53.84 million / + 29.5% respectively, an increase of HK $100 million over the same period last year. The operating margin is 15.3%/+2.6PCT, which is comparable to the improvement in gross margin. The effective tax rate is 21.5%/+2.7PCT, due to the impact of the acquisition peak and the increase in the tax rate for Macau subsidiaries compared with the same period last year. When the tax rate is increased, the net interest rate is 11.8%/+2.1PCT.
Profit forecast: in the fiscal year to March, taking into account the weak consumer environment and sluggish real estate sales, the company lowered its profit forecast. The company's FY23-FY25 revenue is expected to be HK $203.3, HK $227.7 and HK $25.91 billion, respectively, year-on-year of-5.4%, 12.0% and 13.8% (previous value of HK $247.6, HK $286.3 and HK $33.01 billion). The net profit of homing was 24.8,27.8 and 3.15 billion Hong Kong dollars respectively, up 10.1%, 12.4% and 13.3% respectively (the previous value was 26.0,29.9 and 3.44 billion Hong Kong dollars), and the corresponding PE was 10.9x, 9.7x and 8.5x. Maintain a "buy" rating.
Risk Tips:
Industry competition intensifies: under the influence of the external environment, such as the declining real estate boom, relatively weak consumer demand under global inflation, repeated epidemics, small and medium-sized household manufacturers and brands do not have the ability to compete with leading enterprises in many aspects, such as brand, channel, product quality, service, management, etc., and may adopt low-price dumping strategy in the short term, resulting in a decline in the industry's average profit margin. Thus it has a negative impact on the production and operation of the company.
The decline of real estate sales: there is a certain correlation between the market demand of the soft furniture industry and the prosperity of the real estate industry. If the national real estate regulation and control policy becomes stricter in the future, it may restrain the rigid demand and improved housing demand, resulting in a decline in consumer demand for home decoration brought about by the decoration of new houses and the renovation of second-hand houses. it may adversely affect the company's product sales and performance.