Events:
The company released the third quarterly report of 2023. In the first three quarters, it realized revenue of 3.51 billion yuan,-6.6% year-on-year, net profit of 4.07 million yuan, turning losses into profits year-on-year; revenue of 1.44 billion yuan in 3Q2023,-0.9% year-on-year, net profit of 67.05 million yuan,-5.6% year-on-year.
Comments:
The implementation of the "optional selection" strategy was effective, and the operating cash flow released a warming signal: 3Q2023 Company's revenue was basically flat year-on-year, and the revenue of customized furniture in 3Q2023 decreased by about 5% year-on-year, benefiting from the successful implementation of the "optional selection" strategy for the whole house customization, and the revenue of accessory products increased significantly. 3Q2023 was +41% year-on-year and +34% month-on-month.
The net operating cash flow of the Company in the first three quarters of 2023 was RMB 250 million yuan, compared with RMB-110 million yuan in the same period last year. We believe that from a cash flow perspective, the company is showing signs of recovery at the operational level.
During the transition period of reform, the comprehensive gross profit margin performed steadily and the expense control ability was good: in the first three quarters of 2023, the gross profit margin of the Company was 34.6%, year-on-year +0.1pcts. By channel, the gross profit margin of direct sales channel is about 42%, year-on-year-4.0pcts; the gross profit margin of franchised channel is about 32%, year-on-year +2.9pcts. 3Q2023, the gross profit margin of the company was 35.2%,-1.5pcts. The Company is in the transition period of "direct sales to franchising" reform, and under the circumstance that the proportion of revenue from high-margin direct sales decreased, the Company maintained stable comprehensive gross profit margin by virtue of its good ability to reduce costs and increase efficiency.
In the first three quarters of 2023, the company's expense ratio during the period was 34.2%,-2.3pcts, of which the sales/management/R & D/finance expense ratio was 22.7%/6.9%/3.7%/1.1% respectively,-2.3/-0.2/+0.5/-0.3pcts respectively; 3Q2023 company period expense ratio was 28.4%, year-on-year-3.7pcts, of which sales/management/R & D/finance expense ratio was 18.7%/5.6%/3.6%/0.5% respectively, year-on-year-3.6/-0.8/+1.1/-0.5pcts.
Home policy warm wind blowing frequently, the company launched "699" Huimin series positive response: In order to activate the potential of home consumption, the Ministry of Commerce organized and launched the "Home Renewal Consumption Season" activity nationwide from September to December this year. The company actively responded to the policy and released the "699" series for benefiting the people, which includes 699 yuan/㎡ wardrobe, 699 yuan/㎡ cabinet, and a variety of colors to choose from. Under the catalysis of multiple favorable policies, the company is expected to further attract passenger flow and explore the market with high cost performance package.
Positive outlook for company efforts to change, maintain "buy" rating: In view of the current development situation of the domestic real estate industry, the performance of the domestic home furnishing industry, and the fact that the company is still in the reform and transformation period of "direct sales to franchising", we have lowered the company's revenue from 2023 to 2025 to 53.22/60.85/ 69.36 billion yuan.(The downward adjustment range is 6%/6%/4% respectively), and considering that the proportion of high-gross profit direct sales business revenue during the reform period will gradually decrease, we will reduce the net profit attributable to the parent company from 2023 to 2024 to 1.34/197 million yuan (the downward adjustment range is 21%/3%). Considering that the company is actively promoting the "1+N+X" strategy, in the long run, it is conducive to improving the comprehensive operation capability of the company, and the cost control results will continue to be released. We will increase the net profit of the company in 2025 to 279 million yuan.(The increase range is 15%). EPS from 2023 to 2025 is 0.68/0.99/1.41 yuan, and the current share price corresponds to PE of 27/18/13 times respectively. We are optimistic about the development prospect of the company after efforts to change, and maintain the "buy" rating.
Risk warning: domestic real estate sales are less than expected, and the internal reform effect of the company is less than expected.