Introduction to this report:

Q3 Performance was lower than expected, mainly hampered by the decline in the US furniture business; short-term US furniture business profits may still fluctuate; the company will focus on the main home textile business, actively expand stores, and ensure steady growth in performance.

Key points of investment:

Investment advice: Considering that the poor performance of the US furniture business is dragging down the company's performance, the 2023-2025 EPS forecast was lowered to 0.74/0.86/0.97 yuan (before adjustment was 0.87/0.99/1.12 yuan). Considering the company's stable position as the leading home textile company, give 2024 PE 14 times higher than the industry average, and lower the target price to 12.04 yuan to maintain the “increase in holdings” rating.

Incidents: 2023Q1-3 revenue/net profit from net income from net income to net income was 37.55/4.16/389 million yuan, +1.0%/+6.2%/+5.4% from the same period last year; of this, Q3 single quarter revenue/net profit from net income of the mother was 12.98/1.32/131 million yuan, -2.8%/-22.2%/-18.4% of the same period last year. The performance fell short of expectations.

The domestic home textile business grew steadily, and the decline in the US business dragged down performance. Q3 The company's revenue fell 2.8% year on year, mainly affected by the decline in revenue from Lexington furniture business in the US. Domestic home textile business revenue maintained a steady growth trend. Benefiting from the increase in quality and price of domestic home textile products, Q3 gross margin increased by 1.9pct to 43.1% year on year. The Q3 sales expense ratio was 24.5%, +3.5pct year on year. Mainly due to early domestic sales expenses for the peak season and the increase in US business expenses, the management/R&D/finance expense ratio was +0.7/+0.3/+0.5pct year on year. Therefore, the cost rate was +5.1 pct year on year, and the company's profit was under pressure.

Home textile leaders are steadily expanding their stores, and fine management has helped them grow steadily. Considering the decline in demand in the US furniture market, the profit of the US furniture business may still be under pressure in the short term. The company will focus on the main home textile business, actively expand stores, and ensure steady growth in performance. As of 2023H1, the company had a total of 318/2374 direct-operated/franchise stores, of which 31/145 were newly opened and 11/19 were newly opened. The company accelerated the expansion of stores in the second half of the year. It is expected that around 400 new stores will be opened throughout the year. At the same time, refined store management will help improve store efficiency steadily, and profits from the home textile business are expected to grow steadily.

Risk factors: store expansion falls short of expectations, US furniture business performance falls short of expectations