Event: the company signed the "Cooperation Agreement on the Construction and Operation of Qumeike Industrial Park" with China Science and Technology Asia-Pacific, and the two sides cooperated to operate office, plant and land leasing business. The company is responsible for plant renovation investment, infrastructure investment and property management services. China Science and Technology Asia Pacific is responsible for the park investment and industrial planning project introduction, and provides science and technology services to resident enterprises.

Invigorate assets, the report is expected to be optimized. According to the Cooperation Agreement, the company provides China Science and Technology Asia Pacific with a planned operating space of 9377 square meters in the first phase and rent-free support for three years. The remaining area of the park (about 150000 square meters of planned office buildings and factories) is negotiated by both parties and jointly introduced into high-quality enterprises. The company collects office and plant rent. Among the projects introduced by China Science and Technology Asia Pacific, the intermediary service fee is paid by the company (30% of the annual rental income in the first three years of the lease period and 10% in the next three years). If this agreement is successfully implemented, the scale of capital expenditure in the early stage is expected to be small, with the promotion of investment and entry, it is expected to bring stable cash flow to the company, and the statement is expected to continue to be optimized.

Ekornes orders have improved and domestic brands have been renovated. 1) overseas: with the elimination of overseas inventory, Q2 revenue is expected to remain under pressure, but orders show positive year-on-year growth, and non-comfort chair channel penetration increases significantly, with a higher growth rate; with the conversion of previous orders, we expect overseas revenue to gradually achieve positive growth in the second half of the year. 2) domestic: still in the exchange adjustment cycle, Q2 is expected to be under pressure on distribution channels, steady growth in direct business, and the pace of delivery of bulk orders is still lagging behind; it is expected that with the recovery of the business environment, Q3 revenue is expected to resume growth. In addition, the company actively promotes brand refurbishment, through "Qumei Lab" to launch popular style flow products Dun Dun sofa, currently with e-commerce, Xiao Hongshu and other main channel carriers, is expected to further online and offline linkage to strengthen the brand image.

Debt optimization, cost reduction, profits are expected to improve. In terms of debt, the company optimizes the structure of overseas liabilities and reduces the level of interest rates through debt swapping, and short-term overseas interest rate increases lead to high floating interest rates and one-time costs caused by debt swapping; with the expectation of interest rate cuts, and the company gradually reducing the scale of debt, financial expenses are expected to be optimized. In terms of cost, the current raw material prices and sea freight have fallen, the company's high-priced inventory has bottomed out, and Q3 profitability is expected to improve.

Profit forecast and investment rating: overseas Ekornes brands are scarce & strong product power, domestic Qumei brands are renovated smoothly, debt structure optimization and cost reduction gradually bring profit flexibility, however, financial expenses, overseas demand and debt swap and one-time costs arising from Asia-Pacific supply chain adjustment are still dragged down in the first half of 2023, and we do not expect to be profitable for the whole year. Without considering that the construction and operation of the Science and Technology Innovation Industrial Park is expected to contribute income and profit space, we expect the company's net profit to be-50 million yuan / 340 million yuan / 460 million yuan respectively in 2023-2025, and maintain a "buy" rating corresponding to 10X/7X for PE in 2024-2025.

Risk hints: investment promotion and arrival are not as expected, rents are uncertain, consumption recovery is lower than expected, and the pace of overseas redemption is not as expected.