Home furnishing leaders are expected to benefit from a recovery in demand and maintain the results released by the “buy” rating company on March 30, achieving revenue of 14.14 billion yuan in 2022, -8.9% year on year; achieving net profit of 750 million yuan, -63.4% year on year, lower than Wind's unanimous forecast of 1.65 billion yuan; and achieving net profit of 60.2 billion yuan after deducting non-homing mother's net profit of -62.8% year on year. We believe that the reason the performance fell short of expectations was mainly due to the weakening demand for terminals and the company's rent reduction for merchants under the influence of the pandemic. Considering that the impact of the epidemic has abated in '23, policies to promote consumption and real estate have been frequent, but the pace and extent of offline economic recovery is still uncertain. We adjusted the company's 23-24 profit forecast and added a 25-year forecast. We expect the company's net profit to the mother in 23-24 to 2.78 billion yuan (previous value of 26.0 billion yuan, 2.95 billion yuan), and the net profit of Fumo in '25 is estimated to reach 3.33 billion yuan. Comparing A-shares to the company's Wind in '23, they agreed to expect an average value of 13xPE, giving the company's A-shares 13xPE in '23, with a target price of 7.54 yuan. Considering that the average price of H/A since AH was listed at the same time was 54.8%, the company's H shares were discounted by 45.2%. Corresponding to 7xPE in 2023, the target price was HK$4.70 (HKD/RMB exchange rate of 0.88), maintaining the purchase rating.
Self-operated stores are more resilient, and managed stores have sufficient reserves
In 2022, the company's self-operated shopping malls decreased by 1, opened 1 new, closed 1, and switched from self-operated to 1 managed; there was a net increase of 6 managed shopping malls (including 1 transferred from its own operation), 12 new stores opened and 7 closed. The company's own store revenue was 8.2 billion yuan, a slight decrease of 1.7% over the previous year. Among them, the revenue of own/leased/joint ventures was -2.4%/-3.6%/+22.5%, respectively. The occupancy rate of self-operated stores/managed stores was 85.2%/86.7%, respectively. By the end of '22, the company operated 94 self-operated shopping malls, 284 commercial malls, 8 strategic cooperative operations, 57 franchise projects, and 476 home building materials stores. In addition, 19 self-operated shopping malls in preparation and 315 commercial malls under construction had obtained land use licenses/land plots.
Gross margin is under pressure, and the period expense ratio is clearly optimized
The company's gross margin was 58.4%, or 3.3 pct compared to the previous year, mainly due to delays in business development due to the impact of the pandemic.
The company's sales expense rate/management expense rate/financial expense ratio were 11.0%/10.3%/16.4%, respectively, compared to -2.3pct/-3pct/+0.5pct. The cost ratio decreased during the period, thanks to the company's active implementation of improving quality and efficiency.
Consumption in the real estate chain is picking up, and the company's profitability is expected to gradually recover
According to the National Bureau of Statistics, the completed residential area increased 9.7% year on year in January-January, and the retail sales of furniture of enterprises above the limit increased 5.2% year on year. We believe that the recovery in completed area is expected to increase the vitality of consumption in the real estate chain. Since 2021, the company has implemented the strategy of “light assets, heavy operation, and reduced leverage”, and implemented stratified and precise consumer operations. By the end of 2022, the company had opened 32 No. 1 stores, 9 premium malls and 59 benchmark malls. Looking ahead to 2023, against the backdrop of rising industry sentiment, the company will continue to promote an integrated two-wing strategy to reduce costs and increase efficiency, and profitability is expected to gradually recover.
Risk warning: Real estate regulations are becoming stricter, and the speed of opening stores falls short of expectations.