The company announced its semi-annual report for the 2024 fiscal year on November 15. FY2024H1 achieved revenue of HK$8.938 billion, a decrease of 3.78%, and net profit of HK$1,136 billion, an increase of 4.02%. Operations remained steady under the weak recovery in domestic consumption and pressure from overseas demand. The company insists on improving product development capabilities and differentiated competitiveness. In the future, in the context of a joint recovery in domestic and foreign demand, it is expected to release performance elasticity and maintain purchasing ratings.
Key points to support ratings
The domestic sales boom was restored before export sales. The company's revenue for the first half of fiscal year 2024 was HK$8.938 billion, a year-on-year decrease of 3.78%. By product, H1's revenue for sofas and ancillary products in fiscal year 2024 was HK$6.177 billion, a year-on-year decrease of 7.92%. Sofa sales increased 17.0% year over year to 882,000 sets. The revenue for sofas in the Chinese domestic market was HK$3,881 billion, an increase of 1.48%. Looking at volume and price splitting, the number of sofa sets sold domestically increased by 27.6% to 535,000 sets, and the decrease in sofa ASP over the same period last year. We believe this is mainly due to the downgrade in domestic consumption and the company's active deployment of sinking market products to increase market share. Overseas sofa sales increased 3.7% year on year, and sales revenue decreased 8.82% year over year to HK$377 million. The bedding and ancillary products business grew well. H1 achieved revenue of HK$1,491 million, an increase of 7.32% over the previous year. By region, H1's main domestic business revenue for fiscal year 2024 was HK$6.05 billion, up 5.11%, and RMB caliber increased 11.0%. On the offline side, the company focuses on opening stores in declining markets. The number of stores increased by 417 to 6,888 compared to the beginning of the fiscal year. On the online side, the company helps online business development through models such as self-broadcasting, short videos, and live streaming by celebrities. Demand in overseas markets is still weak, but it has gradually improved. In the first half of the fiscal year, the company's revenue in North America also fell 20.54% to HK$2,037 billion. No shipping charges were charged to customers this year. Excluding this impact, revenue also fell 5.4%. Revenue in Europe and the rest of the world also fell 20.60% to HK$532 million. Overall, the company's domestic sales boom has recovered. Although short-term pressure on export sales has not changed the company's competitive advantage, the company is expected to regain revenue growth as overseas demand continues to improve.
Profitability has improved markedly and operational efficiency has been optimized. The gross margin of H1 in fiscal year 2024 was 39.1%, an increase of 0.3 pct over the previous year, mainly due to the decline in raw material prices and the improvement in the company's operating efficiency. The H1 sales expense ratio decreased by 1.89pct to 17.95% year on year, mainly due to the fact that the shipping rate decreased by 2.18 pct to 3.19% year on year. During this period, the company increased marketing investment, and advertising, promotion and brand building expenses increased by 0.78 pct to 3.45% year on year. H1 management expenses also fell by 1.04pct to 5.04%. The company's net profit margin increased by 0.95pct to 12.71% year-on-year in the first half of the fiscal year under the combined effect. The company's operating efficiency improved. The number of inventory turnover days for the first half of the fiscal year was reduced by 26 days to 58 days, and the number of accounts receivable turnover days was also reduced by 6 days to 33 days.
We are optimistic about the good growth of the company's revenue and performance in the context of recovering demand in domestic and overseas markets. Domestic marketing companies use functional sofas as their core products, seize R&D advantages and continue to promote product iteration, and at the same time develop bedding and custom home furnishing services. The development of multi-category packages is expected to increase customer unit value. At the same time, the company actively lays out declining markets, controls the quality of dealers, and continues to empower them. It is expected that through products and marketing, the company will jointly promote the improvement of retail strength. Export-side companies continue to enhance their brand power, strengthen online and other channel expansion in addition to traditional retail and OEM, and are expected to maintain steady growth in the context of recovering demand in domestic and overseas markets.
valuations
Under current share capital, considering that overseas demand is still under pressure, we adjusted the company's FY2024-2026 EPS to HK$0.56/0.65/0.73; PE was 10/9/8 times to maintain the buying rating.
The main risks faced by ratings
Prices of raw materials fluctuate, the international trade environment is becoming stricter, and the expansion of new categories falls short of expectations.