Incident: Mousse Co., Ltd. released its three-quarter report. In the first three quarters of 2023, it achieved operating income of 3.805 billion yuan, a year-on-year decrease of 8.38%, net profit of 518 million yuan, an increase of 21.44% over the previous year, and net profit of 502 million yuan after deducting non-return net profit of 502 million yuan, an increase of 20.77% over the previous year. The company achieved operating income of 1,406 billion yuan in Q3, an increase of 0.33% over the previous year, net profit of 163 million yuan, an increase of 37.43% over the previous year, and net profit of 156 million yuan after deducting non-return net profit of 156 million yuan, an increase of 46.98% over the previous year.

Comment:

Q3 Revenue improved year over year, distribution channels picked up in the first three quarters, and e-commerce increased sharply. The company achieved revenue of 3.805 billion yuan in the first three quarters of 2023, a year-on-year decrease of 8.38%, and achieved revenue of 1,406 billion yuan in Q3 alone, an increase of 0.33% over the previous year. According to the company's research announcement, the company's distribution, e-commerce, direct supply and direct sales channels achieved revenue of 2,899 billion yuan, 640 million yuan, 142 million yuan, and 103 million yuan respectively in the first three quarters of 2023, +4.70%, +23.35%, -76.57%, and -54.37%, respectively. The end of the company's direct supply to Opasius brands and some direct-run stores during the year caused a significant decline in revenue from these channels; in the first three quarters, the company's distribution and retail channels benefited from package sales, promotional activities, and store reinstallation, etc., and achieved positive growth. The e-commerce channel achieved high growth by relying on resource investment in the three major e-commerce channels of Tmall, JD, and Douyin.

Q3 Gross margin continued to improve, and profitability increased. 1) Gross profit margin: The company achieved a gross profit margin of 50.79% in the first three quarters, +4.3pct year on year. The gross margin for Q3 alone was 51.0%, +3.7 pct year on year. Gross margin continued the upward trend in the first half of the year. 2) Period expenses: The company's sales, management, R&D and financial expenses for the first three quarters were 26.3%, 5.8%, 3.5%, and -1.2% respectively, with year-on-year changes of +1.0pct, +0.1pct, +1.0pct, and -1.0pct, respectively. Among them, the year-on-year decline in the financial expense ratio was mainly due to the increase in interest income from bank deposits. 3) Net profit: In the first three quarters, the company achieved net profit of 518 million yuan, a year-on-year increase of 21.44%, a year-on-year increase of 21.44%, a net interest rate of 13.6%, a year-on-year increase of +3.4pct; the Q3 company achieved net profit of 163 million yuan, a year-on-year increase of 37.43%, and a net profit margin of 11.6%, +3.1 pct year-on-year. 4) In terms of operations, the company's cash flow from operating activities in the first three quarters of 23 years was 1.28 billion yuan, up 1269% year on year, mainly due to the company's current credit maturity and the increase in dealer advance payments, an increase in payment payments to suppliers and a decrease in employee wages; the cash flow from investment activities was 4.2 billion yuan, up 195% year on year; cash flow from investment activities was 4.2 billion yuan, up 195% year on year; cash flow from fund-raising activities was -250 million yuan, down 125% year on year, mainly due to capital raised in the same period last year.

The “Mousse” brand is prominent, and its low valuation suggests allocation opportunities. As a leading enterprise in the domestic sleep products industry, the company firmly adheres to the corporate mission of “making people sleep better”, and has outstanding brand strength in the middle and high-end positioning. The mattress track has the logic of increasing penetration rate and concentration. The company is making concerted efforts to expand V6 households through continuous channel expansion and rich categories. Long-term development is worth looking forward to. We expect the company's net profit from 2023-2025 to be 827 million yuan, 955 million yuan, and 1.102 billion yuan respectively, up 16.7%, 15.5%, and 15.4% year-on-year respectively. The current stock prices corresponding to PE in 2023 and 2024 are 16x and 14x respectively, maintaining the “buy” rating.

Risk factors: the risk of a sharp decline in the real estate market, the risk of rising raw material prices, and the risk of market competition.