The bottom of performance and valuation is available, and marginal repair can be expected. Since the acquisition of the global comfort chair leader Ekornes in 2018, Qumei Home has continued to innovate in management and supply chain capabilities. Ekornes brand strength, productivity and channel power are strong, contributing to the company's major revenue growth. 2023H1 achieved operating income of 1.947 billion yuan (year-on-year-23.2%) and net profit of-157 million yuan. Under the background of conflict between Russia and Ukraine and inflation, demand at home and abroad is under pressure, raw material prices have risen sharply, interest rates have risen sharply, and overseas bond costs have been raised. In addition, supply chain adjustment and debt swap have resulted in one-time costs, resulting in a combination of multiple factors that have led to freezing revenue and profits in the first half of the year. Looking at qu Mei from the current point of view, the signal of the reversal of the dilemma is becoming clear:

Ekornes: profit bottomed out and orders picked up marginally. Since 2023, overseas demand has stabilized and the pace of home destocking has advanced. Since 2023Q2, the decline in income in Europe and the United States has narrowed, and orders have returned to positive growth; in terms of profits, the inventory of high-priced raw materials has been basically consumed, global shipping prices are in the downward channel, and profit elasticity is expected to appear, and Ekornes Norway factory automation production leading industry, it is expected that the cost advantage will be further highlighted after the short-term negative factors fade. From an incremental point of view, Stressless non-comfort chair category accelerates channel penetration, North American buyer model + full-product promotion channel sinks, excellent single-store model in Chinese market helps market expansion, and growth prospects are promising.

Qumei home: brand renovated, business recovery. The brand renovation of the company is getting more and more effective. on the one hand, it focuses on consumer demand for new product series and the development of the whole house space, and on the other hand, it attaches importance to the building of online content assets. The new product of "Pier sofa" gradually opens up the online content recommendation-independent station transaction link, which is expected to contribute increment in the second half of the year. In addition, the peak season of domestic "Golden Nine Silver Ten" household consumption is approaching, and with the landing of the policy, optimistic completion and good second-hand housing transactions, we expect steady growth in direct sales and bulk channels, and a narrower decline in domestic income for the whole year.

With reduced liabilities and invigorated assets, the statement is expected to be optimized. Since 2018, the company has introduced war investment, equity financing, debt exchange and other ways to resolve M & A debt risks. The scale of 2023H1 interest-bearing liabilities is 3.217 billion yuan (domestic / overseas 1.35 billion yuan / 1.87 billion yuan respectively), and the debt structure has been continuously optimized. At present, the company's annual interest expense is more than 200 million yuan, which is mainly due to the increase of interest rates in the global financial market to raise the cost of overseas interest-bearing liabilities. We expect to come to an end with the follow-up increase in interest rates in the global financial markets, and the improvement in business conditions at home and abroad, equity financing and land asset leasing will form a useful supplement to the company's cash flow, and the debt pressure is expected to be further alleviated.

Profit forecast and investment rating: with the recovery of operations at home and abroad, we expect operating profits to recover steadily, and with the realization of positive factors such as equity financing, land leasing and high interest rates, the annualized interest expenses are expected to be gradually reduced. We estimate that the net profit of homing will be-110 million yuan / 200 million yuan / 350 million yuan in 2023-2025 and 15X/9X corresponding to PE in 2024-2025, maintaining the "buy" rating.

Risk tips: interest rate increases in global financial markets continue, real estate continues to decline, downstream demand recovers less than expected, raw materials and sea freight prices fluctuate, and investment in Science and Technology Park falls short of expectations.