Description of the event

The company expects to achieve revenue of 1,985-2.116 billion yuan in 2024Q1, an increase of 10%-20%; net profit/net profit after deducting non-net profit of 1.57-1.88/135-161 million yuan, all with a similar increase of 50%-80%.

Incident comments

2024Q1 revenue growth was excellent. Q1 revenue achieved double-digit growth, mainly due to: 1) the overall strategy continued to be promoted; 2) the previous year's base was low; 3) the year-on-year delay in the Spring Festival this year brought in sufficient production orders. By brand:

1) Sophia brand: It is estimated that Q1 is growing well under the overall strategy (2023Q4 +15%). Among them, kitchen cabinet and wooden door support increased, continuing to boost customer order value (factory-side customer orders also increased 6% in 2023).

2) Milana brand: It is estimated that Q1 continued its high growth trend (2023Q4 +22%), with a net increase of 176 to 514 stores in 2023 (the number of stores also increased 52% at the end of the year). Horizontal category expansion contributed to a 7% increase in factory-side customer orders in 2023.

3) Huahe & Simi: Both have now been adjusted under the overall strategic framework, and will gradually return to normal operation this year.

Furthermore, it is estimated that the Q1 assembly channel is still growing strongly (2023Q4 +38%). Among them, the number of integrated assembly companies increased net by 61 to 221 in 2023, covering a net increase of 92 to 185 in the number of cities and regions. The cultivation and expansion of existing assembly companies and the cooperation and development of new equipment companies continued to contribute to the increase.

2024Q1 profit surpassed expectations. The company expects Q1 net profit/deducted non-net profit to both increase by 50%-80%. According to forecasted revenue and profit center estimates, it is estimated that the Q1 return to mother/non-net interest rate will also increase by about 2.5/2.2 pcts to 8.3%/7.1%. The profit improvement is related to factors such as continued cost reduction and efficiency gains and stricter control on the cost side.

Under the overall strategy, Sophia Retail is the core incremental source. Milana & Integrated Packaging is growing rapidly, expanding ancillary products and increasing customer order flexibility. 1) Sophia retail is expected to grow steadily, with kitchen cabinets, wooden doors, household goods, etc. all contributing; 2) Integrated packaging is expected to continue to increase; 2) The deepening cooperation with equipment companies and the gradual introduction of kitchen cabinet categories is the driving force for growth; 3) Milana's superior growth is expected to continue, maintaining rapid store expansion and optimized operations with the prospect that there is still plenty of room for investment and opening; 4) Simi & Huahe will start again after adjustments, and the overall strategy will be strengthened, and the number of stores will expand at the same time; 5) The engineering business is expected to be steady, and exports are expected to expand steadily. High increase. Cost reduction measures continue this year, and gross margin is expected to rise steadily.

I am optimistic that the company will advance the big household strategy, and the high dividends are expected to continue. The company has an excellent channel system and manufacturing capabilities. At this stage, there is still plenty of room to drive customer order growth and category expansion with a whole-house model. The complete channel is in a stage of rapid development, and Milana and others have formed a good momentum to supplement the brand matrix and grow. The 2023 dividend rate exceeded expectations and reached 75%, corresponding to the current dividend rate of about 6.2%, and the dividend rate is expected to remain high in the future. Earlier, the company announced employee stock ownership plans, which will help stimulate team motivation. The company is expected to achieve net profit of 1,48/1.68 billion yuan in 2024-2025, corresponding to PE10/9x, maintaining a “buy” rating.

Risk warning

1. Real estate sales and completion fell short of expectations.

2. The results of the company's channel operation and transformation are lower than expected.