Key points of investment:
The company released its 2022 annual report and the first quarterly report of 2023, which is generally in line with expectations. Revenue in 2022 was 5.314 billion yuan, down 27.30% year on year, net profit of 46 million yuan, down 48.39% year on year, after deducting net profit of non-return mother - 17 million yuan, loss. 2023Q1's revenue was 809 million yuan, a year-on-year decrease of 25.50%. The net profit of the mother was 95 million yuan, a slight decrease over the previous year, after deducting the net profit of the non-return mother - 104 million yuan, a slight decrease over the previous year.
The impact of the epidemic, combined with the adjustment of internal business strategies, saw a year-on-year decline in revenue, and short-term pressure on profits.
By product: Sales are under pressure in the short term, and the new “choose what you want” model is expected to drive growth. In 2022, revenue from custom furniture products was 3.84 billion yuan, a year-on-year decrease of 25.3%; revenue from ancillary products was 650 million yuan, a year-on-year decrease of 36.8%; software and technical services was 0.3 billion yuan, an increase of 3% over the previous year; revenue from O2O drainage services was 0.6 billion yuan, down 14.1% from the previous year; and revenue from the assembly business (referring to sales revenue from assembly of main and auxiliary materials and decoration services) was 4.6 billion yuan, a decrease of 42.0% from the previous year. The company launched a new “choose as you like” whole house customization model in 2022, which relies on the advantages of artificial intelligence to provide professional design, personalized customization and finished product matching, so that consumers can choose products at will and understand consumption in a one-stop shop. Combined with “smart supply chain” capabilities, the company has reached close cooperation with leading brands in many segments, cooperating with more than 100 major brands and over 5,000 products to achieve “more speed and better savings” to protect the “choose as you like” whole house customization model and consumer demand. Along with the recovery in consumption, the company's revenue from customized furniture products and accessories is expected to resume growth with the help of the “choose as you like” model.
Retail side: Increase investment promotion efforts and improve offline channel coverage. The revenue of the direct management model in 2022 was 1.16 billion yuan, a year-on-year decrease of 38.8%, and the revenue of the franchise model was 2.85 billion yuan, a year-on-year decrease of 24.7%. The company continues to improve its offline channel coverage, actively solicits and nurtures and supports high-quality merchants, and continues to promote cooperation through multiple channels such as bag, assembly, and pan-home furnishing enterprises, and consolidates the advantages of its own omnichannel online communication matrices such as KOLs, Douyin, WeChat, Xiaohongshu, and Tmall. 1) Directly managed cities: Adhere to the “1+N+Z” urban development strategy, use a limited number of superstores to display and share the entire city, and help N dealers expand their business through various Z channels in terms of logistics and delivery. By the end of 2022, the number of directly managed stores by the company was 72, and the number of franchised stores in self-operated cities was 303. 2) Franchise business: The company optimizes service team layout and system construction, so that franchisees can reduce capital investment and reduce operational difficulties. The store shape and store location are adapted to local conditions, and the company launched “Little Orange Store” and “Little Blue Store”, which are light fashion, asset light, redesign, and quick transformation based on core technical advantages, with key support and investment from the headquarters. The company opened 373 new franchise stores in 2022, and the number of company franchised stores by the end of 2022 was 2,056.
Complete model: Self-operated installation focuses on “Guangzhou, Foshan, and Shenzhen”, and the integration cloud deepens to empower enterprises. In 2022, the company's consolidated model (which refers to all products sold through integrated channels) earned 750 million yuan, a year-on-year decrease of 32.4%. 1) HOMKOO Assembly Cloud: Adhere to system empowerment, set up a headquarters support center to respond quickly to demand through the regional manager (offline) +account manager (online) service model; insist on product empowerment to provide various package products (88888 complete package package, 26800 whole house selection package, 18800 whole house customized package, etc.) to help increase transaction rate, customer unit price, and soft assembly ratio to meet the consumption needs of a one-stop full house. 2) Self-operated assembly: Focus on “Guangzhou, Foshan and Shenzhen”, vigorously work, go deep, and achieve innovative breakthroughs to launch the Christmas bird assembly business.
Profit side: Performance is under pressure in the short term, and net interest rate recovery is flexible. The company's gross margin in 2022 was 34.62%, up 1.45 pct year on year, net interest rate was 0.87%, down 0.35 pct year on year. In an environment where external pressure was high in 2022, the company's gross margin still increased year on year. The decline in net interest rates was mainly related to cost mismatch under income affected by the pandemic. The expense rate during 2022 was 33.9%, up 1.75pct year on year. The gross margin of the 2023Q1 company was 30.98%, down 0.66 pct from the previous year, and profit was lost. Under the influence of external pressure and internal adjustments, the company's net interest rate is at a low level. With subsequent consumption recovery, the company's revenue is expected to be corrected in the next few quarters. The business model with high operating leverage makes future profit recovery more flexible.
The company continues to improve offline channels, accelerate the layout of empty cities, solidly push forward the “1+N+Z” urban development strategy, actively solicits and nurtures and supports high-quality businesses, launched a new “choose whatever” model on the product side to promote product integration. Complete Cloud insists on empowering enterprises, and focus on “Guangzhou, Foshan and Shenzhen” through self-management. Considering the time required for the company's consumption recovery and internal strategy adjustments, the company's net profit for 2023-2024 was lowered to 205/281 million yuan (previous value was 244/276 million yuan), the net profit returned to the mother in 2025 was 361 million yuan, and the year-on-year growth rate of net profit to the mother in 2023-2025 was 343.3%/36.7%/28.6%, respectively. The current stock price corresponding to PE in 2023-2025 was 21/15/12 times, maintaining the “increase in holdings” rating.
Risk warning: Terminal demand continues to weaken, and investment promotion is lower than expected.