What happened: the company announced that its revenue in the first three quarters of 2023 was 3.512 billion yuan, down 6.59% from the same period last year, and its net profit was 4 million yuan, an increase of 113.69% over the same period last year. In the third quarter alone, the company achieved revenue of 1.442 billion yuan, down 0.93% from the same period last year, and realized a net profit of 67 million yuan, down 5.57% from the same period last year.

The company is still in the stage of strategic adjustment, with revenue falling slightly in the third quarter. The company's revenue in the third quarter of 2023 was 1.442 billion yuan, down 0.93% from the same period last year. The company is still in the stage of channel optimization and adjustment, and its revenue has dropped slightly from the same period last year. In terms of categories, the custom furniture business is subject to the influence of relatively weak terminal demand, and it is speculated that there is still a single-digit decline compared with the same period last year; in the same period, the matching products business benefits from the continuous promotion of the "random choice" model and is expected to achieve double-digit growth. Looking to the future, with the completion of the optimization and adjustment of the company's terminal stores, with the continuous promotion of product strategies such as random selection and 699 discount packages, the whole package and bag-carrying model is becoming more and more mature, and the revenue growth rate is expected to become positive gradually.

Reducing costs and increasing efficiency continued, and profits gradually stabilized and rebounded in the third quarter. In the third quarter of 2023, the company achieved a gross profit margin of 35.22%, a decrease of 1.5pct compared with the same period last year. It is speculated that the adjustment of the company's channel structure and product structure (low gross margin joining channel and increased proportion of matching products) led to a year-on-year decline in gross profit margin. During the same period, the company achieved an expense rate of 28.41%, a decrease of 3.7pct compared with the same period last year. It is speculated that the downward trend of expense rate is mainly due to the company's continuous efforts to reduce costs, efficiency and cost control. Split, the sales expense rate and management expense rate in the third quarter were 18.74% and 5.60% respectively, down 3.6pct and 0.8pct respectively from the same period last year. In the third quarter of 2023, the company deducted the non-return net interest rate by 4.22%, an increase of 0.8pct over the same period last year, and profitability stabilized and rebounded.

With the continuous development of products and channels, the company is expected to return to the path of steady growth. The company continues to make efforts in products and channels, and is expected to return to the path of steady growth. On the product side, the company continues to deepen the "random choice" new house customization model to meet the liberalization and personalized needs of home improvement in the new era. At the same time, it has launched 699 Huimin special packages to seize the flow entrance with cost-effective products. On the channel side, the company firmly implements the "1+N+Z" development strategy, giving full play to the display and drainage role of super stores, and at the same time helping dealers to carry out multi-channel development in the dimensions of logistics and delivery; in addition, the company complies with the trend of decentralization of home improvement flow entrances and diversified transaction scenes, actively open up new channels such as complete equipment and carrying bags, and deepen omni-channel operation capacity.

Properly adjust the income growth assumption of the company's customized furniture and supporting products, adjust the expense rate assumption, and predict that the company's return net profit in 2023-2025 will be 0.94 billion yuan respectively (the previous forecast is 105 million yuan in 2023-2024), give the target price of DCF 19.91 yuan, and maintain the "overweight" rating.

Risk hint

The completion of the real estate is not as expected; the competition in the industry is intensified; the risk of the transformation of the joining channel and the expansion of the assembly business is not up to expectations.