Incident Overview

Fusimei released its 2023 semi-annual report. 2023H1 achieved revenue of 774 million yuan, -1.97% year-on-year; net profit of 429 million yuan, -7.37% of the same period; net profit of 435 million yuan after deducting non-attributable net profit of 435 million yuan, -1.16% year-on-year. On a quarterly basis, Q2 achieved revenue of 384 million yuan in a single quarter, -3.68% year-on-year, and net profit of 204 million yuan, or -13.59% year-on-year. In terms of cash flow, the net cash flow generated by 2023H1 Company's operating activities was $353 million, or -46.75%, mainly due to a decrease of 298 million yuan in net factoring payments in the current period compared to the same period of the previous year; net cash flow from investment activities was 234 million yuan, +628.62% year-on-year, mainly due to the redemption of wealth management products and the sale of Xing Chu Century shares in the current period.

Furthermore, the company plans to distribute a cash dividend of 4 yuan (tax included) for every 10 shares to continue to give back to investors.

Analytical judgment:

Revenue side: Core business remained stable. New marketing activities efficiently empowered merchants. In the first half of 2023, the company achieved revenue of 774 million yuan, -1.97% year-on-year. Revenue was under pressure in the short term. We expect it to be mainly due to the weak macro environment compounded by the weakening of the real estate sales side (-2.80% year-on-year sales area of residential commercial housing in the first half of 2023). Insufficient market consumption expectations have raised concerns among merchants. Tenants' contract area is more cautious and some tenants' leases expire and exit have led to a decline in the company's revenue. By product, the 2023H1 company's market leasing and services/decoration engineering/commissioned operation management/advertising space and marketing advertising planning were 654 million yuan, $74 million, 6.349 million yuan, and 3.6559 million yuan respectively, compared to +0.59%, +12.78%, +13.52%, and -24.14%, respectively. The core leasing business remained stable and the outsourcing business grew well. During the reporting period, the company further promoted the “Fusemei 1+3” new marketing, strengthened traffic creation and traffic monetization, efficiently empowered merchants, and increased the willingness of merchants to renew their leases. Furthermore, during the reporting period, the company continued to promote the construction of the Fusemei Tianfu project and investment promotion work, and incremental business can be expected in the future.

Profit side: Gross margin declined, and the cost ratio increased slightly during the period. In terms of profitability, 2023H1's gross profit margin and net profit margin were 70.67% and 57.28%, respectively, and -1.05 pct and -3.45 pct, respectively, from the previous year. Among them, the gross profit margin and net interest rate for the Q2 quarter were 71.23% and 54.43%, respectively, and -0.15 pct and -7.43 pct, respectively. We expect the company's investment in investment promotion and maintenance of existing customers will increase, which will drag down the company's profitability to a certain extent in the short term. In terms of the period cost rate, the 2023H1 company's period expense rate was 5.34%, +0.40 pct year on year. Among them, the sales expense rate, management expense rate, and financial expense rate were 0.47%, 4.95%, and -0.07%, respectively, and the year-on-year rate were +0.01 pct, +0.42 pct, and -0.03 pct, respectively.

Investment advice

In the medium to long term, demand for households will continue to be released, stimulated by the urbanization rate, rising income, and increased demand for inventory. As a leading home furnishing store with a large scale and strong overall competitiveness in the southwest region, the company has been deeply involved in Chengdu for 20 years. It has a high penetration rate, outstanding cost advantages for self-owned properties, and stable and long-lasting profits. Currently, it has a self-operated store with a construction area of more than 1.1 million square meters, more than 3,500 cooperative merchants, and continues to rank among the highest in the region in terms of transaction volume and market share. We believe that as the national real estate policy and household consumption policy continue to increase, future market demand is expected to recover, and the company's revenue recovery as a leading regional home furnishing store in Sichuan can be expected. Considering that the current consumer demand in the industry is still weak, we adjusted our previous profit forecast. The company's operating income for 2023-2025 was adjusted from 16.35/17.83/1,948 billion yuan to 15.03/16.85/1,887 billion yuan, and EPS was adjusted from 1.19/1.30/1.41 yuan to 1.05/1.21/1.37 yuan respectively, corresponding to the closing price of 13.90 yuan/share on August 28, 2023. PE was 13/12/10 times, respectively. Company “buy” ratings.

Risk warning

Real estate sales fell short of expectations, leading to a weakening in demand for homes. 2) Competition in the home retail market in Sichuan is intensifying. 3) The company's investment income fell short of expectations.