Results for the first three quarters of 2020 were lower than we expected.
The company announced 1-3Q2020 results: operating income was 1.81 billion yuan, down 34.9% from the same period last year; net profit from home was-214 million yuan, down 60.4% from the same period last year; and net profit from non-return to home was-223 million yuan, down 54.8% from the same period last year, which was lower than we expected, mainly due to the delay of the epidemic and the delivery of orders.
Quarter by quarter, Q1/Q2/Q3 revenue rose (decreased)-75.7% Universe 37.8% Universe 3.8%, homing net profit increased (decreased)-192.7% Universe 170.6% Universe 145.2%.
Trend of development
1. 1-3Q revenue has gradually improved, and the single Q3 growth rate has become positive. The revenue of 1-3Q20 company decreased by-34.9% compared with the same period last year, mainly due to the epidemic situation affecting the progress of the project, and the newly signed orders were greatly affected. Q3 revenue increased by 3.8% compared with the same period last year, and continued to improve month-on-month. We believe that the demand for home decoration is relatively rigid, taking into account the effective control of the epidemic and the gradual improvement of completion data, the delayed demand for home decoration is expected to be gradually released in the future, leading to the pick-up of company orders. With the resumption of work and production, home decoration projects around the orderly implementation, we expect to speed up the progress of the project is expected to further promote the carry-over of accounts received in advance. In addition, the company is actively expanding online channels to increase the conversion rate of online customers, and the diversified channel structure is also expected to promote revenue growth in the future.
2. The profit end of the third quarter turned from loss to profit. The gross profit margin of 1-3Q2020 increased by 0.5ppt to 33.2% year-on-year, and the expense rate increased by 9.1ppt during the period. We expect that the higher rigid cost is the main reason, in which the sales expense rate is higher than the same period last year (4.5ppt), the management + R & D expense rate is higher than the same period last year (5.0ppt), and the financial expense rate is basically the same as the same period last year. Under the combined influence, the company's 1-3Q20 loss narrowed to 214 million yuan.
3. Follow up the progress of strategic cooperation with XIAOMI. The company introduced XIAOMI as a strategic investor, aiming to combine the company's advantages in the field of home decoration with XIAOMI Group's in-depth layout in the field of smart things, and jointly create a new intelligent home experience. In the short term, the cooperation with XIAOMI Technology is expected to enhance the company's brand influence and bring incremental customers; in the long run, it will help the company to cut into the new scene of smart home and create a complete "Bamboo B to C".
Business model. Follow-up need to continue to pay attention to the synergy brought about by strategic cooperation with XIAOMI.
Profit forecast and valuation
As the epidemic dragged down the progress of the project, the earnings per share forecast for 2020x2021 was lowered by 9% of earnings per share to 0.55 yuan per share, with the current share price corresponding to 13.5 times 2021 earnings. Maintain the outperform industry rating, but due to the earnings forecast downgrade, we cut the target price by 4.5% to 9.01 yuan corresponding to 16.5 times 2021 price-to-earnings ratio, which has 22.6% upside compared to the current stock price.
Risk
The price of raw materials fluctuated sharply, and the regulation of real estate exceeded expectations.