The penetration rate of domestic functional sofa market is low, and the future development prospect is broad. The functional sofa originated in the United States and completed high-speed penetration with the process of urbanization and economic development in the United States in the 1970s and 1980s, while the functional sofa market in China began to accelerate development in 2010 and is still in a dividend period of low penetration and high growth. According to Euromonitor International estimates, the penetration rate of functional sofas in China in 2016 is about 11.35%, and the permeability has continued to increase since 2010. With the continuous improvement of the purchasing power of domestic consumers and the increasing requirements for the quality of life, they are more willing to replace / update furniture regularly and improve the high-end and refinement of living space by paying a certain cost. The company is expected to stabilize its market position in the functional sofa segment with low penetration and high growth, and take the lead in seizing the market share of the Blue Ocean.
The company is an outstanding exporter of functional sofas, ranking among the top three in market share. After years of business development, the company continues to improve its market competitiveness, and its product quality, R & D and design capabilities are in the leading level in the industry. In the future, the company will further expand production capacity, extend the company's product line and layout multi-category products according to the industry development trend; at the same time, strengthen and improve the construction of the company's technical research and development system and marketing network, enhance the company's comprehensive strength, improve the company's brand awareness, expand market share, and actively explore and open up the market of other new products on the basis of consolidating the traditional advantages of the sofa market.
18Q3's single-quarter results have improved significantly, and we believe that with the gradual maturity of the company's domestic sales development and the continuous expansion of export customers, the stability of future performance growth will gradually increase: in the first three quarters of 18, the company's operating income increased by 8.13% compared with the same period last year, and the homing net profit decreased by 13.62%. We believe that the company's revenue and profit growth center in the first three quarters of 18 years are lower than those in 2017, mainly due to the decline in the growth center of the furniture industry and the impact of trade frictions on the company's product exports. superimposed the impact of low gross profit margin in the early stage of domestic sales development. However, quarter by quarter, 18Q3's revenue and net profit grew by 18.79% and 45.72% respectively, which is significantly better than that of 18Q1-Q2.
Profit forecast and investment advice: the company is one of the few independent R & D manufacturers focusing on functional sofas in the industry. with the further expansion of the production capacity of the sofa, the scale advantage will continue to improve. We estimate that the 18-20 year net profit of the company will be 0.75,1.13 and 159 million yuan respectively, an increase of-9.48%, 51.07% and 40.80% respectively over the same period last year, corresponding to EPS of 0.94 yuan, 1.41 yuan and 1.99 yuan. The current stock price corresponds to 35x, 23x and 17x. Combining the absolute valuation method and the relative valuation method, the company was given 25 times (PE) in 19 years, corresponding to the target price of 35.25 yuan, and the "overweight" rating was given for the first time.
Risk hint: market competition aggravates risk; exchange rate fluctuation risk; raw material price fluctuation risk; Sino-US trade friction risk.