Event: The company's main revenue for the first three quarters of 2023 was 3.755 billion yuan, up 0.99% year on year, and net profit was 416 million yuan, up 6.17% year on year. Among them, in the third quarter, the main revenue for a single quarter was 1,298 million yuan, down 2.81% year on year, and net profit was 132 million yuan, down 22.19% year on year.

The performance of the main home textile industry was steady, and the furniture business was temporarily hampered. The company owns two home textile brands, Rollei and LOVO. The home textile business accounts for 78% of the company's revenue. The company also has Lexington American high-end furniture brands. The overall performance of the home textile business in the first three quarters was steady. Looking at revenue by channel, the third quarter is speculated to have continued the trend of the previous two quarters, and direct channel growth was better than franchise channels; judging from the exhibition situation, the company's annual opening target was over 400. As of the first half of the year, the company opened 176 new stores, and the home textile industry was concentrated in the second half of the year, so the company still maintained a relatively positive pace of opening stores. It is optimistic to complete the annual store opening target. The overseas furniture business was dragged down by the inflationary macro environment in the US, and revenue declined. At the same time, factors such as insufficient capacity utilization also affected profit margin performance. Looking at the home textile business in the short term guarantees a certain increase in the company's overall performance, while looking at the brand advantages of the furniture business in the long term, it is safe for the business to improve.

The profit margin of the home textile business remains excellent, the company's overall profit margin needs to improve, and the overall inventory and cash flow situation is stable. The company's gross profit margin for the first three quarters was 44.68% (year-on-year +2.09pct). The increase in gross margin was related to the rapid increase in the share of direct home textile business growth. At the same time, the increase in the share of the company's high-margin products also contributed to gross margin. The company's expense ratio for the first three quarters was 31.09% (year-on-year +2.07pct), of which the sales expense ratio was 23.15% (year-on-year +1.69pct), mainly due to an increase in the share of the company's direct business, and the increase in expenses in preparation for the fourth quarter. The company's net profit margin for the first three quarters was 11.03% (year over year +0.49pct), and the net interest rate for the third quarter alone was 10.02% (y-2.62 pct), mainly due to the concentrated cost investment period in the third quarter and increased pressure on the profit margin of the overseas home furnishing business. Looking at the whole year, we believe that the profitability of the home textile business is relatively stable. At the same time, we are optimistic about the future recovery of the home textile franchise business and the return of profit margins brought about by the recovery of the overseas furniture business. Judging from the operating performance, the company's inventory turnover days for the first three quarters were 200 days, and the inventory situation improved month-on-month; the cash flow from operating activities in the first three quarters was 593 million yuan, a significant improvement over the previous year and month, showing that the company's cash position was relatively healthy, and the excellent quality of performance also provided a good cash basis for future development.

The two leading home textile brands seize the market flexibly, and it is expected that the empty area will continue to expand and grow in the future. Rollei is a leader in the home textile industry. It has two advantageous brands with different positions, and also has the advantages of channel layout and online and offline operation experience. Judging from the pace of development, the company has sorted out channels in the past two years, and the channels have entered an expansion range. An increase in the company's share in the home textile industry can be expected.

Profit forecast and investment rating: The company's main home textile business continues to expand online and offline and implement refined operations; the high quality of overseas Lexington brands is optimistic that the company will continue to develop steadily, while also optimistic that the company will continue to have a high level of dividends. Net profit for 2023-2024 is estimated to be 590, 6.85, and 786 million yuan. The current stock price corresponding to PE is 14.36, 12.36, and 10.77 times, respectively, maintaining the “recommended” rating.

Risk warning: Competition among various channels in the industry is intensifying, inventory digestion is not timely, and high overseas inflation continues.