Main points of investment

The scale of income has maintained a rapid growth, and the volume of basic modules is obvious: from a business-by-business point of view, the volume of basic modules is obvious, and functional modules grow slightly. During the period, the company continued to expand the market through multi-channel expansion and increased marketing, and the revenue scale maintained rapid growth. Among them, the income of the basic module business reached 156 million yuan, an increase of 58.3% over the same period last year. During the period, the promotion and engineering channels of new products such as Rui series led to the volume growth of the basic module business. It is expected that with the landing and release of Evergrande orders in the second half of the year, the basic module business expansion is expected to maintain a high growth rate. The functional module business achieved revenue of 92 million yuan, an increase of 9.92% over the same period last year, maintaining steady growth. The revenue of the auxiliary module reached 35 million yuan, an increase of 18.7% over the same period last year.

From a regional point of view, East China has maintained steady growth, and South China and Southwest China have made greater efforts to expand: during the period, all business regions of the company have achieved varying degrees of growth, of which the revenue in East China has reached 80 million yuan, an increase of 20% over the same period last year; during the period, the company's expansion effect in South China and Southwest China is relatively obvious, with revenue growth of 88% and 44% respectively over the same period last year, which is higher than the company's overall revenue growth rate.

The decline in the level of gross profit margin is mainly due to the increase in the proportion of basic modules with relatively low gross profit margin and the decrease of their own gross profit margin. From the perspective of product structure, the company achieved a gross profit margin of 48.41% during the period, down 1.57 percentage points from the previous year, of which the gross profit margin of the basic module business decreased by 1. 5%.

The gross profit margin of the functional module business was slightly higher than that of the same period last year, and the decline of the gross profit margin of the basic module with relatively low gross profit margin superimposed the increase in the proportion of its income, resulting in a decline in the overall gross profit margin; the decline in the gross profit margin of the basic module is expected to be mainly affected by higher costs brought about by rising prices of major raw materials such as aluminum and steel.

The cost of advertising has increased significantly, resulting in a significant increase in the rate of sales expenses. During the period, the company achieved an annual net interest rate of 22.6%, a decrease of 4.4 percentage points compared with the same period last year. The decline in net interest rate was larger than that of gross margin, mainly due to the increase in expense rate. During the period, the company's expense rate was 23.9%, an increase of 6.7% over the same period last year, mainly due to the increase in sales expense rate. 1) the rate of sales expenses was 14.48%, an increase of 5.33%. According to the breakdown of sales expenses, the company began to strengthen its brand and advertising efforts in the second half of last year, and continued to strengthen in the first half of this year. They have successively launched quality life festivals, CCTV advertising and other activities, resulting in a substantial increase in advertising expenses during the period, compared with 18.61 million yuan in the same period last year and 5.57 million yuan in the same period last year. Much more than the advertising expenditure for the whole of last year (13.44 million yuan) The decoration subsidy fee for dealers increased by 30% over the same period last year, which basically matched the income growth; the consulting fee was 4.85 million yuan, compared with 380000 yuan in the same period last year. 2) the rate of management expenses was 10.3%, an increase of 1.5 percentage points over the same period last year.

Investment advice: the integrated ceiling industry is one of the fastest growing categories in the home, and the company is the industry leader and the only listed company. The effects of brand promotion, management optimization and channel adjustment have gradually emerged in the past few years. In the future, multi-channel expansion and product category extension will help the company to expand market share rapidly. During the period, the company continued to increase advertising efforts to promote terminal sales gradually appeared, while the company has received Evergrande prepaid payment, it is expected that in the second half of the year, with the arrival of the peak decoration season, Evergrande order supply is expected to drive the rapid growth of revenue. We estimate that from 2017 to 2019, the company's EPS is 1.99,2.68,3.37 yuan respectively, corresponding to PE is 28,21,17 times, maintaining a "buy" rating.

Risk hint: the decline in real estate sales is higher than expected, and the new business expansion is lower than expected.