FY2024H1's revenue/net profit was HK$8.94 billion and net profit of HK$1.14 billion respectively, -3.8%/+4.0% year-on-year. Revenue was in line with expectations and profit fell short of our expectations; domestic sales revenue grew by 5.1% (RMB caliber of 11%), export sales -18.4%, domestic sales recovered and e-commerce growth was superior to offline, while export sales were still affected by overseas inventory removal. Looking ahead, by strengthening channel construction and boosting same-store growth, domestic sales are expected to continue a steady recovery trend; export orders have resumed, and revenue growth is expected to rise markedly in the second half of the fiscal year, helping improve the company's fundamentals. Maintain the company's “buy” rating, with a target price of HK$7.1.
FY2024H1 revenue is in line with expectations, domestic sales have been steadily restored, and export orders have been corrected. FY2024H1 (corresponding to April to September 2023), the company's revenue (excluding other revenue) was HK$8.94 billion, -3.8% year-on-year, in line with our expectations. By market, the FY2024H1 Chinese market revenue is HK$6.01 billion, +5.1% year-on-year, and the RMB caliber growth rate is 11.0%. It is in a steady state of recovery, with a retail growth rate of 3.0%. Considering that the number of stores in the Chinese market reached 6888 by the end of 2023Q3 (same increase of 658, growth rate of 11%), we simply estimate that FY2024H1 offline stores still have a single-digit decline, mainly related to industry demand pressure and adjustments in domestic sales channels. Overseas, the revenue of the FY2024H1 North American market was HK$2.04 billion, -20.5% year-on-year, with sofas and ancement/iron frames growing by -22.4%/+23.8% respectively, mainly affected by the high base due to overseas warehousing and shipping surcharges. It is expected that there will be a marked improvement in the second half of the fiscal year; European and other overseas market revenue -20.6% yoy to HK$530 million, and Home Group +6.7% yoy to HK$300 million.
FY2024H1 deducted +9.7% of non-net profit, and profitability increased year over year. Net profit of FY2024H1 was HK$1.14 billion, +4.0% year-on-year, lower than our expectations; net profit after deducting +9.7% yoy to HK$1.29 billion (RMB caliber growth rate of 15.8%). The comprehensive gross profit ratio of FY2024H1 was 39.1%, +0.2pct; among them, the Chinese market was +1.3 pcts to 41.2% year on year, mainly benefiting from falling raw material prices and increased manufacturing efficiency; the North American market was -5.9 pcts to 35.9% year on year, mainly affected by shipping surcharges, and actual +5.1 pcts after exclusion; European and other overseas markets were +6.1 pcts to 27.4% year on year. The cost rate for the FY2024H1 period was 24.1%, -2.5pcts year over year. Among them, the management/sales expense ratio was -1.0/-1.9pcts to 5.0%/17.9% year over year, returning to normal levels, and the financial expenses rate was +0.4 pct to 1.1% year over year. Other revenue for FY2024H1 was -12.4% yoy to HK$210 million, accounting for a revenue ratio of -0.2 pct to 2.4% yoy. The loss from changes in the fair value of bonds was $98 million, and the total loss of fixed asset disposal/accounts receivable and investment losses was HK$0.54. Together, other gains and losses accounted for -1.3 pcts to -1.6% of revenue. Overall, net interest rate was +1.0pcts year-on-year to 12.7%.
E-commerce growth is superior to offline, sofa sales have increased, and ASP has declined. The C-side revenue of the FY2024H1 domestic sales was HK$5.38 billion, +3.0% year-on-year (RMB caliber growth rate 8.8%), of which offline store/e-commerce revenue was HK$41.0/1.29 billion respectively, +0.7%/+11.3% year-on-year (RMB caliber growth rate of 6.3%/17.5%). E-commerce growth was superior to offline stores. By category, FY2024H1 domestic sales of sofas (including accessories) revenue was HK$3.89 billion, +1.5%, sales volume/ASP growth rate +27.6%/-20.5%, export sofa (including accessories) revenue of HK$2.29 billion, -20.5% yoy, and sales/ASP growth rate of +3.7%/-23.3% respectively; domestic sales revenue of bedding was +7.3% year over year to HK$1.49 billion; domestic sales revenue of iron frames was +58.6% year over year to HK$590 million. Looking ahead to the second half of the fiscal year, the company will continue to promote channel construction and boost the level of same-store growth, and it is expected that domestic sales will maintain a steady recovery trend; orders for export sales are currently recovering well, and the year-on-year growth rate above the low base is expected to improve markedly from month to month, becoming an important driver for revenue growth.
Risk factors: Multi-category/multi-brand integration results are lower than expected; raw materials and transportation costs have increased dramatically; e-commerce's impact on offline channels has increased; real estate regulation has become stricter; and industry competition has intensified.
Investment recommendation: Taking into account the FY2024H1 performance and H2 outlook, the 2024-2025 EPS forecast was lowered to HK$0.55/0.62 (the original forecast was HK$0.72/0.85), and the 2026 EPS forecast was added to HK$0.69. Referring to the valuation levels of comparable leading home furnishing companies (such as Oupai Home Furnishing/Gujia Home, the average dynamic PE in 2023 is 16x, based on Wind's unanimous expectations), considering Hong Kong stock factors, the company was given 13x PE for fiscal year 2024, corresponding to the target price of HK$7.1, maintaining a “buy” rating.