The Zhitong Finance App learned that Guotai Junan released a research report saying that the current valuation of the home furnishing sector has more fully reflected pessimistic expectations for a future slowdown in downstream sales growth. The logic of increasing concentration among leading home furnishing companies is still being interpreted, and there is still plenty of room for long-term growth. The recovery in real estate sales will be an important catalyst for a recovery in sector valuations. As consumer confidence improves, the backlog of decoration demand is expected to be transformed. Leading home improvement companies actively adapt to changing trends in terminal home improvement traffic, expand omnichannel layouts and focus on developing complete decoration channels, promote multi-category integration through methods such as focusing on whole family packages and large household strategies, and at the same time build multi-brand matrices to segment customers and expand target consumer groups to help increase market share and give the industry an “increase in weight” rating for the first time.

Recommended: 1) Whole house customization+channel optimization: Oppai Home (603833.SH), Zhibang Home (603801.SH), Sophia (002572.SZ), Gold Medal Kitchen Cabinet (603180.SH); 2) Category integration+channel innovation: Gujia Home (), Minhua Holdings (01999), Mousse Co., Ltd. (001323.SZ); 4) Major leaders: Jiangshan Oupai (Dubai), Wangli Security (). 603816.SH 603208.SH 605268.SH

Guotai Junan's views are as follows:

The decline in stock prices in the home sector was mainly driven by a contraction in valuation.

From a stock price perspective, home furnishing companies generally outperformed the industry in 2023; from a performance perspective, the overall appearance of home furnishing companies in the first three quarters of 2023 still achieved steady growth, and consistent growth expectations throughout the year were relatively stable. The decline in stock prices was driven more by contraction at the valuation level. Judging from the historical PE quantification level, the PE corresponding to the profit forecast of home furnishing companies in 2023 is basically in the lower range of 5% to 15% in history.

The contraction in valuation is affected by the downturn in industry growth expectations and the competitive landscape.

1) New real estate construction affects expectations for the growth rate of home performance. Historical data shows that home valuations are highly correlated with the growth rate of housing starts. Since May 2021, the growth rate of new residential construction has been under pressure, and home furnishing company valuations have also entered a downward channel at the same time. 2) Affected by the restoration of downstream consumer confidence, industry supply increased and competition intensified. Brands and channel dealers in the home furnishing industry expect the lagging demand for household consumption during the pandemic to gradually be released and enter a procyclical market. The restoration of passenger traffic in home furnishing malls is expected to further boost confidence in supply-side expansion.

Looking forward to the future, pay attention to the recovery slope of downstream demand.

Since the third quarter of 2023, the demand-side policy toolbox has been expanded and vigorous. Both supply and demand sides have boosted confidence. On November 22, Shenzhen announced that it will adjust the certification standards for ordinary housing and lower the minimum down payment ratio for two housing units to 40%, which is conducive to stimulating the release of potential immediate demand and improved demand. Completion in 2024 is still expected to continue to be resilient and support the release of home improvement demand in 2024.

Risk warning: raw material prices fluctuate greatly; industry competition intensifies; risk of large exchange rate fluctuations in a short period of time; downstream demand is under pressure.