Key points of investment
Minhua Holdings issued a performance announcement:
In the first half of fiscal year 23/24 (April 23 to September 23), the company's operating income was HK$8.938 billion (-3.8% yoy, rmb caliber +1.6%), net profit of HK$1,136 million (+4.0% yoy, rmb caliber +9.8%), net profit after deducting non-return net profit of HK$1,288 million (+9.7% yoy, rmb caliber +15.8%). The company's 23/24H1 gross margin was 39.1%, up 0.3 pct year on year; net profit margin was 12.7%, up 0.9 pct year on year, and profitability improved relatively well.
Domestic sales: explore sinking markets and continue to open channels
The Chinese market revenue for the period was $6.05 billion (+5.1%, rmb caliber +11.0%). Excluding iron-frame caliber, the Chinese market revenue of HK$5.383 billion (+3%, rmb caliber +9%):
(1) The revenue of offline stores was HK$4,098 billion, up 0.7% year on year (rmb caliber +6.3%), with a net increase of 417 stores to 6888. The company focused on developing stores in declining markets and adding cost performance series in Tier 1 and 2 cities, keeping the closing rate at a low level of about 7.3%.
(2) Online e-commerce revenue was HK$1,285 million, up 11.3% year on year (rmb caliber +17.5%). Strengthen the live streaming sales model online, and achieve increased brand influence and sales growth through short video promotion, live streaming in own stores, and in-depth cooperation with leading anchors.
Export sales: Revenue from inventory removal tends to rise, and gross margin in the European market is rising (1) North American market: North American market revenue of HK$2,037 billion (-20.5%, actual -5.4% after excluding shipping surcharges), gross profit margin 35.9% (-5.9pct, up 5.1 pct after excluding shipping surcharges). With the end of inventory removal in the US market in the first half of this year, revenue gradually resumed growth, and the monthly growth rate at the end of the reporting period reached double digits.
(2) Europe and other overseas markets: European and other overseas markets had revenue of HK$532 million (-20.6%, actual growth rate -8.8% excluding the impact of the decline in iron frame business), and gross profit of 27.4% (+6.1pct), mainly due to lower raw material costs. Sales revenue in Europe and other overseas markets also entered a phase of positive monthly growth at the end of the period.
By category: Domestic sales of sofas are growing rapidly, and product competition barriers are continuously strengthened (1) Sofas & accessories achieved revenue of HK$6.177 billion (-7.9%), total sales volume of 882,000 sets (+17%); domestic sofa revenue was HK$3,891 billion (+1.5%, rmb caliber +7.1%), sales volume 535,000 sets (+27.6%), and the company uses R&D as its core support to continuously strengthen product competitiveness and barriers.
(2) Bedding (all domestic sales) reached HK$1,491 million (+7.3%, RMB caliber +13.3%). Bedding products were upgraded, and channel terminal display optimization continued to advance.
Financial indicators: raw material prices declined, gross margin increased, cost ratio decreased (1) gross profit margin increased by 39.1% (+0.3 pct), domestic sales margin increased by 1.3 pct to 41.2%, mainly due to price reduction of raw materials, including steel (-15.7%), leather (-14.4%), chemicals (-2.1%), wood products (-22.4%), packaging and others (-6.3%), and distribution ratio (-4.4%). (2) The total cost ratio for the period was 24.05% (-2.5pct) (3) The net profit rate was 12.7%, up 0.95 pct from the previous year. Excluding the impact of non-recurring profit and loss of HK$150 million (mainly fluctuations in the fair price of bonds held), the performance was even better.
Profit forecasting and valuation
The inflection point of the company's domestic sales operations has gradually become apparent, and the acceptance of foreign trade orders in the second half of the fiscal year is expected to be excellent, and recommendations continue to be made.
We expect the company to achieve operating income of HK$18.711 billion (+8%), HK$20.994 billion (+12%), and HK$23.533 billion (+12%); net profit of HK$2,311 billion (+21%), HK$2,586 billion (+12%), and HK$2,848 billion (+10%) over the next three fiscal years; corresponding to current market capitalization PE of 9.23X, 8.25X, and 7.49X, maintaining a “buy” rating.
Risk warning
Real estate continues to be sluggish, and raw material prices fluctuate greatly