Event: The company's revenue for the first half of fiscal year 2024 (ending 2023.09.30) was HK$8.94 billion, -3.8% year-on-year; profit attributable to equity owners of the company was HK$1.14 billion, +4.0% year-on-year (+9.8% in RMB caliber).
The company intends to pay an interim dividend of HK$0.15 per share.
Domestic sales business is recovering, and channel expansion continues to be promoted. In the first half of fiscal year 2024, the company's domestic sales revenue was HK$6.01 billion, +5.1% year-on-year. If calculated in RMB terms, +11.0% year-on-year, the recovery was obvious from a low base.
By category, sofas and beds achieved revenue of HK$38.9/1.49 billion respectively, +1.5%/+7.3% over the same period last year (HKD caliber). Sofa revenue grew steadily, mainly driven by an increase in sales volume (up 27.6% year on year), and the company's functional sofas achieved further penetration into the declining market. The bedding business is growing at a high rate, driven by the expansion of channels and joint marketing with categories. Looking at the channel side, the company is actively developing both online and offline. Currently, the company has 6,888 stores, an increase of 417 during the reporting period. While continuing to open stores, the company is also strengthening store efficiency management; online, the company continues to actively develop and promote the live streaming sales model through a team of young professionals. There is a lot of room for improvement in the penetration rate of functional sofas compared to the US. We are optimistic that the company will continue to explore the market as a leader, and at the same time use functional sofa brands and channels to continuously drive the rapid development of bedding and other businesses.
The export business is under pressure, and future growth can be expected. The company achieved revenue of HK$2.04 billion in North America, -20.5% year-on-year. Excluding the shipping surcharges levied to customers during the same period of the year due to high shipping charges, the company was under slight pressure. North America is the company's main overseas market. After the Hong Kong blockage problem eased in the second half of last year, local retailers generally had high inventories, which in turn affected purchasing demand. At present, it has been about a year since the removal of stocks in North America began, and we believe that demand for inventory replenishment has gradually recovered. Revenue in Europe and other markets (excluding HOME Group) was HK$530 million, -20.6% year-on-year, of which sofa sales were HK$380 million, -8.8% year-on-year, mainly due to significant changes in markets outside of Europe. In addition, the HOME Group's business revenue was HK$300 million, +6.7% year-on-year. The revenue scale has recovered, and the Ukrainian plant has not been seriously damaged.
The company said that overseas business had a good recovery in the second quarter of the financial report (23Q3), so we are optimistic that in the second half of the fiscal year, against the backdrop of demand recovery and a low base, the company's export business will achieve a high growth rate. The company already has a high share overseas and has established cooperation with many major customers. In addition, we have sufficient reserves of overseas production capacity, so in the long run, we believe that the company's overseas business will grow steadily.
Prices on the cost side have declined, driving improvements in profitability. The company's gross profit margin for the first half of fiscal year 2024 was 39.1%, +0.2pct over the same period last year. Raw material prices declined during the reporting period, but on the other hand, the company no longer charged shipping surcharges from overseas customers (previously included in revenue). The company's gross margin increased slightly due to the combination of two factors. The company's sales expense ratio was 18.0%, -1.9pct year-on-year, benefiting from the decline in shipping costs. The management/finance expense ratio was -1.0pct/+0.4pct year-on-year, respectively. In addition, the company's other losses increased by HK$120 million year-on-year, mainly due to changes in fair value. Overall, the company's net interest rate rose 1.0pct to 12.7%. Looking ahead to the second half of the fiscal year, the profit side is expected to achieve high growth under a low base. The company's profitability has been stable in the past, and has established scale advantages and brand power in the functional sofa category. We are optimistic that the company's profit margin will remain at a high level in the long run.
Profit forecast and investment rating: The company has outstanding product strength in the functional sofa category and has established strong brand and channel advantages in domestic and foreign markets. We are optimistic that the company will benefit from the development of the two high-potential categories of functional sofas and mattresses, and continue to grow. The company's net profit for the 2024-2026 fiscal year was HK$22.9, 26.1, and HK$2.94 billion respectively. The current stock price corresponding to PE is 9.4, 8.2, and 7.3 times, respectively. We maintain our “recommended” rating.
Risk warning: Real estate sales data fell short of expectations, and household consumption fell short of expectations.