Matters:

The company released the three-quarter report for 2023:23Q1-3 revenue of 2.93 billion/-21.8%, net income of the mother - 206 million/- 228.4%, not minus - 190 million/-253.3%; 23Q3 revenue - 980 million/-18.9%, net income - 49.37 million/-242%, non-63.71 million/-274.8%.

Commentary:

Domestic business is under pressure, and overseas growth is steady. 1) Domestic sector: The Q3 revenue side is expected to remain under pressure. In terms of product strategy, the domestic business continued to deepen brand renewal work in '23, positioned the “multi-function space” brand, built online content assets, and built the Qumei Lab Dundun sofa content matrix on content platforms such as Xiaohongshu and Douyin. In terms of channel strategy, the company grasped the offline recovery time window, upgraded its store image and expanded new businesses with new SKUs (a net increase of 40 stores in 23H1), and the quantity and quality of offline channels increased. 2) Overseas sector:

According to Ekornes Investor Relation, 2023Q3 achieved revenue of 953 million NOK and YOY -16%, of which StressLESS/IMG/SVANE achieved revenue of 6.72/2.24/0.57 NOK and YOY -21%/+3%/-8%; the global furniture market was affected by the economic downturn, and Ekornes continued to increase the channel penetration rate of non-comfortable products such as functional sofas and dining chairs, and the Chinese market encouraged dealers to develop high floor efficiency, high returns, and low investment Composite traffic channel stores. The North American market sinks through channels through buyer stores.

The gross profit side was under pressure, and cash flow increased year over year. In terms of profit, the gross margin of the 23Q1-3 company decreased by 2.8pcts to 31.4%, and the gross margin of the 23Q3 company decreased by 1.4pcts to 32.87%, mainly due to the increase in raw material costs; in terms of expenses, the single Q3 sales/management/development/development/finance expense ratio was +2.2/+1.1/flat /+6.6pct to 20.1%/8.8%/2%/8.2%/8.2%, respectively. Overall, the period expenses increased 9.9 pcts to 39.1% year on year, mainly due to disturbances such as exchange losses and interest expenses. The net cash flow generated by 23Q1-3's operating activities was 530 million yuan, an increase of 76.6% over the previous year, or mainly due to a decrease in expenditure on procurement of raw materials and outsourced products in the current period.

Q3 Performance is under pressure, waiting for management improvements, and maintaining a “push” rating. The company is expected to use its product+marketing advantages to seize domestic market share, and the development momentum of overseas subsidiaries is improving. Moreover, according to the semi-annual report, 23H1Ekornes has basically completed the digestion of high-priced raw materials+declining raw material costs, so gross margin is expected to improve. Based on this, considering the performance of the first three quarters, we expect net profit for 23-25 to be -1.26/2.24/334 million yuan (the original value in 23-24 was 385/566 million yuan), and the corresponding PE is -25/14/10X; referring to the absolute valuation method, a target price of 7 yuan was given to maintain the “push” rating.

Risk warning: risk of fluctuations in raw materials and costs; macroeconomic environment affecting demand; increased industry competition, etc.