Incidents:
The company released its 2023 mid-year report. In the first half of 2023, the company achieved revenue of 2.07 billion yuan, -10.2% year-on-year, and net profit of -60 million yuan; of these, 2Q2023 achieved revenue of 1.26 billion yuan, +3.5% year-on-year, and net profit of 0.3 billion yuan.
Comment:
Continuously optimizing the store layout, operating cash flow released a signal of recovery: by product, 1H2023, the company's customized/furnished furniture achieved revenue of 1,49,270 million yuan, respectively, -9.2%/-7.1% over the same period. By region, 1H2023, the company achieved revenue of 5.9/5.5/31/280 million yuan in South China/East China/North China/Central China, respectively, with a year-on-year ratio of -13.8%/+0.3%/-5.8%/-18.4%.
Adhere to the “1+N+Z” development strategy of self-operated cities and continuously optimize store layout. 1H2023. The total number of stores in the company was 2,063, of which the number of franchisees and direct-run stores was 2009/54. Compared with the end of 2022, there were net -47/-18, respectively. The company's average revenue per store was 1,040,000 yuan, or -1.0% year-on-year. Looking at the franchise store breakdown, 1H2023 opened a total of 231 new franchise stores, of which there was a net increase of 19 to 322 franchise stores in self-operated cities, and a net decrease of 66 to 1,687 franchise stores in other cities.
The company's net operating cash flow for the first half of the year was -36 million yuan, while the net operating cash flow for the same period last year was -175 million yuan.
We think that looking at the first half of the year, the company showed signs of recovery at the management level.
The gross margin of the custom furniture business has increased, and the cost control ability is good: 1H2023, the company's gross margin was 34.1%, +1.0 pcts over the previous year. By product, the gross margin for custom furniture/furnished furniture was 35.28%/13.69%, respectively, +2.6/-9.5 pcts over the previous year. 2Q2023, the company's gross margin was 36.1%, +1.7 pcts over the same period last year. The company uses technological change to drive the creation of new business models. As a “digital intelligence pioneer” in the industry, the company currently has 300,000+ products, 3 million+ apartments, 30 million+ solutions, and an industry database with tens of millions of parameter data. It has created a new “AI design assistant” based on AIGC technology with a large multi-modal model, empowering the whole house to “choose whatever you want”.
1H2023 The company's expenses rate for the period was 38.3%, year-on-year -1.0 pcts. Among them, the sales/management/development/finance expense ratio was 25.4%/7.7%/3.7%/1.5%, respectively, and -1.5%, respectively, -1.3/+0.3/flat /-0.1 pcts. The decrease in the sales cost rate was mainly due to a decrease in advertising expenses and employee remuneration. The slight increase in management expenses was mainly due to an increase in depreciation and amortization expenses. The decrease in the financial cost rate was mainly due to a decrease in interest expenses for discounting notes. The 2Q2023 company's expenses rate for the period was 33.4%, the same as -1.7 pcts. Among them, the sales/management/R&D/financial expenses ratio was 22.0%/7.1%/3.1%/1.2%, respectively, and -1.0/+0.2/-0.3/-0.6 pcts, respectively.
The real estate & home policy is warm and is expected to support a recovery in household demand: on the one hand, policies and measures such as “reducing the down payment ratio and loan interest rate for the purchase of the first home”, “improved housing exchange tax relief”, and “no loan approval” continue to consolidate the steady recovery of the real estate market. From January to July 2023, the total area of commercial housing completed was +20.8% over the same period; on the other hand, since July, national and local governments have introduced policies to promote household consumption at a high frequency, highlighting that household consumption is an important support for expanding domestic demand and steady growth. Neckties drive household consumption.
From January to July 2023, retail sales of furniture in China were 81.1 billion yuan, with a cumulative year-on-year increase of +3.2%.
Good domestic policy side+AIGC's deep empowerment is optional, optimistic about the company's development prospects, and maintains a “buy” rating:
Considering that the company's revenue and profit performance in the first half of the year fell short of expectations, the company currently continues to optimize the store layout. It will take some time to develop the “1+N+Z” channel. We lowered our net profit for 2023-2024 to 17/204 million yuan (47%/51% respectively), added 243 million yuan to the 2025 net profit forecast of 243 million yuan, and the 2023-2025 EPS is 0.86/1.03/1.23 yuan. The current stock price corresponds to 23/19/16 times, respectively. In view of the frequent warming of domestic real estate and household policies, the company is deeply involved in multi-modal and large-scale AIGC technology, actively empowers the new model of “whole house customization, whatever you like”, and maintains the “buy” rating.
Risk warning: Domestic macroeconomic recovery falls short of expectations, and policy results fall short of expectations.