Q3 revenue was steady, and net interest rates reached a record high in Q3

The company released the 2023 three-quarter report: the first three quarters achieved revenue of 1,925 billion yuan (-2.9%), net profit of 346 million yuan (+5.7%); revenue of 653 million yuan (+0.9%) in Q3 alone, net profit of 127 million yuan (+9.2%), steady revenue performance, and profitability reached the best level in Q3 history, demonstrating the resilience of leading high-end home textiles leaders.

The decline in e-commerce narrowed month-on-month, and offline was highly stable

The decline in e-commerce was narrower than in the first half of the year. 23Q1-Q3 e-commerce revenue was 760 million yuan (-5.1%), and Q3 revenue was 229 million yuan (-2.9%). The decline was narrower than in the first half of the year. The e-commerce growth rate has been under relative pressure since this year. The main reason is that in an environment where e-commerce traffic is bottlenecked and market competition is intensifying, the company has always assessed net profit. The aim is to attract customers with differentiated products with high unit prices, while being more restrained in spending.

Offline is highly stable, and the increase in group home purchases is impressive. 23Q1-Q3 direct business/franchise revenue was 457/518 million yuan, -3.8%/-1.2% year-on-year, and single Q3 revenue was 145/195 million yuan, +2.1%/0.8% year-on-year, with steady performance. 23Q1-Q3 group purchase/household revenue was 190 million yuan (+4.0%), and Q3 revenue alone was 84 million yuan (+10.6%).

Gross margin continues to rise, and fee control ability is stable

The gross margin/net margin of the 23Q1-Q3 company was +1.45/1.46pp to 54.6%/18.0%, respectively, and the single Q3 gross margin/net margin was +1.54/1.48pp to 55.4%/19.5%, respectively, all of which reached record highs in the same period in Q3. We expect it mainly to come from continuous product innovation and upgrading, optimized product structure, refined store management, and stable fee control capabilities. In terms of cost rates, Q3 sales/management/R&D/finance expense rates were +0.21/-1.32/-0.75/-0.09pp, respectively.

At the end of Q3, the company had inventories of 789 million yuan (-11.0% year-on-year), Q1-Q3 operating cash flow of 324 million yuan (+8.2%), and excellent operating quality.

Profit forecasts and investment suggestions:

Since this year, the company has stepped up its efforts to open franchise stores. The goal is to increase the number of franchise stores by 200 during the year, mainly to be released in the second half of the year. The company's latest order fair is in line with expectations, and its high-end products have been well received by franchisees. Under a high-quality development strategy, the company's profitability is expected to maintain an upward trend. Revenue is estimated at 31.5/34.2/3.71 billion yuan in 23-25, up 2.4%/8.6%/8.5% year on year, net profit of 5.7/6.3/690 million yuan, year-on-year increase of 7.3%/10.0%/9.5%, corresponding to PE 13/12/11 times. The company's performance is steady, undervaluation, and high dividend attributes are outstanding, maintaining a “buy” rating.

Risk warning: raw material prices fluctuate greatly, store opening falls short of expectations, e-commerce competition has further intensified