FY2023H1's revenue / return net profit is HK $9.29 billion / HK $1.09 billion respectively, which is-9.1% and 10.5% compared with the same period last year, which is in line with our expectations. The improvement in net interest rate is mainly due to the decline in raw material prices and the improvement in manufacturing efficiency. Looking forward to the follow-up, although FY2023H1 domestic sales same-store growth pressure is greater, but through channel adjustment, enabling dealers to enhance active marketing capacity, has stabilized the repair situation; export is still facing downward pressure in the short term, but after the rapid decline of sea freight, order return + base reduction is expected to improve the export pressure situation.

Maintain the company's "buy" rating with a target price of HK $10.0.

FY2023H1 revenue is in line with expectations, domestic sales of the same store under pressure, but the stabilization repair situation is expected to open. FY2023H1's revenue (excluding other income) is 9.29 billion Hong Kong dollars,-9.1% compared with the same period last year, which is in line with our expectations. From a market point of view, FY2023H1's income in China is HK $5.71 billion, year-on-year-10.7%, accounting for 61.5%, of which retail growth is-7.9%. Considering that the number of stores in China reached 6230 by the end of Q3 (with an increase of 861, or 16%), we simply estimate that the number of offline stores in FY2023H1 fell by 20% to 30%, mainly affected by the epidemic and weaker real estate delivery. However, with the company strengthening dealer empowerment measures and improving its active marketing ability, orders have been picked up from August to September. Overseas, FY2023H1 North American market revenue of 2.56 billion Hong Kong dollars, year-on-year + 0.1%, the impact of weakening overseas demand continues to show, is still expected to be in the bottom stage in the short term; Europe and other overseas market revenue + 2.1% to 670 million Hong Kong dollars, peak contribution to form a certain support; Home Group affected by the conflict between Russia and Ukraine, revenue-39.9% to 280 million Hong Kong dollars. By category, the income of FY2023H1 sofa (including accessories) is HK $6.71 billion,-5.0% compared with the same period last year, while the income of bedding / iron frame is HK $1.51 billion / 730 million, which is + 2.8% and 33.0% compared with the same period last year.

FY2023H1 performance is in line with expectations, the profitability of domestic sales has improved, while export sales have decreased slightly. The net profit of FY2023H1 is HK $1.09 billion, which is + 10.5% compared with the same period last year, which is in line with our expectations. FY2023H1 comprehensive gross profit margin is 38.8%, year-on-year + 2.6pcts; of which the Chinese market is from + 4.2pcts to 39.9%, mainly benefiting from the decline in raw material prices, manufacturing efficiency improvement and structural optimization; North American market year-on-year + 0.7pct to 41.8%, the improvement is weaker than the Chinese market, mainly due to the change in the proportion of FOB mode / CIF mode. European and other overseas markets year-on-year-2.9pcts to 21.3%, in addition to the impact of changes in shipping terms and conditions, peak consolidation is also a drag; Home Group year-on-year-3.1pcts to 22.5%.

During the FY2023H1 period, the expense rate is from + 1.3pcts to 26.6% compared with the same period last year, of which the management expense rate is from + 0.9pct to 6.1%. The largest range is that the company set aside HK $84.53 million to deal with US Raffel patent litigation, while the sales / financial expense rate is 19.8%, 0.7%, year-on-year + 0.1/+0.3pct, and the sales expense control effect begins to show. Benefit from government subsidies increased significantly, FY2023H1 other income from + 70.3% to HK $240 million, accounting for + 1.2pcts to 2.6% of income year-on-year. Macau's tax concession period ends and Vietnam / peak losses are not included in the tax base calculation, resulting in an effective tax rate of + 2.7pcts to 21.5% compared with the same period last year. Taken together, the net interest rate is + 2.1pcts to 11.8% compared with the same period last year, of which domestic sales are 15.3% / export 5.9%.

The growth of e-commerce is better than offline, and the changing trend of sofa ASP for domestic and export is different. The C-end revenue of FY2023H1 domestic sales was HK $5.34 billion, which was-7.9% compared with the same period last year (RMB caliber growth rate-3.6%), of which offline store / e-commerce revenue was HK $41.9 / 1.15 billion, respectively. Compared with the same period last year, e-commerce growth was better than offline stores, and the proportion of revenue reached by dealers through online customers increased steadily. By category, FY2023H1 domestic sofas (including accessories) earned HK $3.83 billion, year-on-year-11.5%, sales / ASP growth rates were-1.5%, 10.1%, export sofas (including accessories) earned HK $2.87 billion, year-on-year + 5.4%, sales / ASP growth rates were-15.1%, 24.2%, respectively, and domestic sales revenue from bedding was + 2.8% to HK $1.51 billion. The domestic sales revenue of iron frame was-38.1% to HK $370 million compared with the same period last year. The pace of the company's store opening tends to be steady, the channel adjustment is gradually carried out, FY2023H1 closes 254 stores (4.3%), while enhancing the diversified customer acquisition capacity of dealers, the benefits have been initially shown; although export is facing the pressure to continue to bottom in the short term, after the sea freight is reduced, the trend of orders returning to China and Southeast Asia is expected to start, and it is expected to pick up growth after the base is reduced next year.

Risk factors: local epidemic repeated impact exceeded expectations; multi-category / multi-brand integration effect was lower than expected; raw materials and transportation costs increased; e-commerce increased impact on offline channels; real estate regulation became stricter; industry competition intensified.

Investment suggestion: taking into account the FY2023H1 performance and H2 outlook, downgrade the FY2023-2025 EPS forecast to HK $0.62, 0.72 and 0.85 (the original forecast is HK $0.66, 0.78 and 0.91). With reference to the valuation level of comparable leading household companies (such as European Home / Home Care, the average dynamic PE of 2022 is 19x), the company is given 16x PE in fiscal year 2023, corresponding to the target price of HK $10.0, maintaining a "buy" rating.