Weak terminal demand is dragging down business performance, and we look forward to subsequent improvements

Daya Shengxiang released its semi-annual report. 23H1 achieved revenue of 2,675 million yuan (yoy -19.63%), net profit of 102 million yuan (yoy -46.74%), minus non-net profit of 97.02 million yuan (yoy -23.43%). Among them, Q2 achieved revenue of 1,653 million yuan (yoy -17.58%) and net profit of 146 million yuan (yoy -31.77%). In the first half of the year, the flooring and wood-based panel business was hampered by weak demand recovery. Revenue declined. At the same time, profit performance was weaker than revenue, mainly due to the increase in various expense rates under the decline in revenue. Considering that terminal demand is still weak, we lowered our revenue forecast for flooring and wood-based panels, and estimated net profit for 23-25 to be 356/4.21/489 million yuan (previous value: 477/536/598 million yuan), corresponding to EPS of 0.65, 0.77, and 0.89 yuan respectively. Referring to the comparable company Wind's unanimous expectation in 23 years, the average PE value was 16 times higher, giving the company 16 times PE in 23, with a target price of 10.04 yuan (previous value of 13.92 yuan), maintaining the “buy” rating.

Weak demand dragged down the company's revenue performance in various businesses. The gross margin of the wooden flooring business improved year-on-year in the first half of '23. Affected by fluctuations in the real estate industry cycle, terminal demand performance was still weak, which dragged down the company's revenue from various businesses to a year-on-year decline. By business, 23H1 wood flooring business revenue also fell 12.42% to 1,822 billion yuan, but benefiting from falling raw material prices, gross margin increased 2.34 pct to 32.72% year on year; in addition, 23H1 medium to high density board/bamboo, stone plastic flooring/wooden doors and cloakroom business revenue fell 11.83%/54.42%/50.73% year on year to 5.63/2.52/0.16 billion yuan, respectively.

23H1 gross sales margin increased 2.20 pct year on year, and net operating cash flow performance was steady 23H1 gross sales margin increased 2.20 pct to 26.3%. We determined that it was mainly due to a decline in raw material costs, which led to an increase in gross margin in the flooring business; during the 23H1 period, the cost rate increased by 3.01 pct to 21.2%. Among them, the sales expense ratio increased 1.34 pct to 9.4%, management+R&D expenses increased 2.13pct to 12.7%. The company's sales, management and R&D expenses all declined in the first half of the year, but revenue declined Underneath, the dilution effect on rigid expenses weakened, leading to a year-on-year increase in the cost ratio; the 23H1 financial expense ratio also decreased by 0.45 pct to -1.0%, mainly due to an increase in interest income. Under comprehensive influence, 23H1's net sales interest rate also decreased by 1.88pct to 3.79%, resulting in a decline in net profit greater than the decline in revenue. In addition, 23H1's net operating cash flow also increased by 22.61% to 249 million yuan, and net operating cash flow performance was steady.

Leading in the flooring/wood-based panel industry, brand and scale advantages continue to highlight the brand side. According to the company's interim report, the “500 Most Valuable Brands in China” ranking in '23 shows that the “Shengxiang” brand value has reached 85.856 billion yuan, ranking first in the Chinese home furnishing industry for many years. At the same time, Daya Wood-based Panels topped the list in China's wood-based panel industry with a brand value of 30.575 billion yuan. On the manufacturing side, the company currently has an annual floor production capacity of 80 million square meters and a production capacity of 1.55 million cubic meters of medium to high density board and chipboard. The scale advantage guarantees market competitiveness. On the marketing side, the company has established nearly 3,000 flooring specialty stores in China, and is also actively deploying online and new retail channels. We are optimistic about the company's leading position in the flooring and wood-based panel industry, and look forward to subsequent business improvements.

Risk warning: Demand recovery falls short of expectations, real estate sales are declining, and raw material costs are rising.