The performance is in line with market expectations

The company announced 1H23 results: 1H23 achieved revenue of 973 million yuan, same decrease of 30.32%, net profit of 84 million yuan, same decrease of 32.5%, net profit of non-return income of 59 million yuan, same decrease of 47.34%, in line with market expectations. Excluding Hubei Qianchuan's consolidated profit and loss for the first half of 2022, 1H23's revenue decreased by 8.59%, net profit by returning to the same amount by 7.89%, and net profit after deducting non-return net profit by 26.26%. On a quarterly basis, the company achieved revenue of 348/625 million yuan respectively in 1Q/2Q23, -43.47%/-19.95% year-on-year, net profit of 0.12/072 million yuan, and -70.66%/-13.96% year-on-year, respectively. The business situation gradually improved.

Development trends

1. The cabinet category is performing well, and the wardrobe category is still being adjusted. Excluding the impact of the Hubei Qianchuan merger, looking at products by 1H23, 1) Overall wardrobe: revenue of 725 million yuan, same decrease of 11.07%, gross margin increase of 0.57 ppt to 39.26%; 2) Cabinet: revenue of 1.92 billion yuan, same increase of 13.84%, gross margin decrease of 1.51 ppt to 27.12%, mainly due to an increase in the share of bulk business; 3) Wooden doors: revenue of 34 million yuan, same decrease of 2.72%, gross margin increase of 0.57ppt to 21.68%; 4) Finished product package:

Revenue was 42 million yuan, down 18.96%, and gross margin decreased 3.61 ppt to 23.49%; 5) Doors and Windows: Revenue was 101 million yuan, down 89.38%, mainly due to the company's brand change in the doors and windows business. We believe that with the further implementation of the company's future household strategy, the company's orders and customer unit values are expected to maintain a growing trend, driving a gradual recovery in performance.

2. The gross margin remained stable, and the investment of expenses was strengthened. The company's 1H23 gross margin was 35.87%, -0.33ppt year on year, which remained relatively stable. On the cost side, the company's cost rate during the 1H23 period was 28.25%, +5.68ppt. Among them, the sales/management+R&D/financial expense ratio was 13.62%/12.92%/1.7%, respectively, and +2.97pp/+2.29ppt/+0.42ppt, and the company's overall cost investment increased. Under comprehensive influence, 1H23's net interest rate was 8.69%, -0.28ppt year on year.

3. Mass channels are gradually picking up, and pay attention to the progress of retail channel recovery. Excluding the impact of the merger of Qianchuan in Hubei, and looking at the 1H23 sub-channel, 1) Distribution: Revenue was 811 million yuan, down 15.00%, and gross margin increased 2.49ppt to 37.81%. 2) Direct management: Revenue was 36 million yuan, down 9.39%, and gross margin fell 5.57 ppt to 51.32%, mainly due to changes in the product sales structure in the direct market. As of the first half of the year, the company had close to 1,400 dealers nationwide, a net increase of about 100, 1,900 distribution stores, and a net increase of about 100. 3) Volume: Revenue was 75 million yuan, an increase of 181.16%, and gross margin decreased by 3.06ppt to 12.51%. We believe that the company's bulk business is growing steadily, retail channels are being expanded collaboratively, and the company's performance is expected to gradually recover.

Profit forecasting and valuation

The profit forecast for 2023/2024 remains unchanged. The current stock price corresponding to 2023/2024 is 11/9 times P/E, respectively. Maintaining an outperforming industry rating and maintaining a target price of 13 yuan, corresponding to 2023/2024, is 13/11 times P/E, respectively. There is 18% upward space compared to the current stock price.

risks

The decline in the real estate boom exceeded expectations, competition increased risks, and raw materials fluctuated greatly.