The company released its 2024 quarterly report. 24Q1 achieved revenue of 1.84 billion/+45.3%, net profit to mother of 100 million/ +15.1%, net profit deducted from non-mother net profit of 96 million/ +13.6%; Q1 company's revenue continued to grow rapidly, and profit margins were affected by fluctuations in sea freight rates in the short term, and it is expected that it will continue to recover upward in the future. The company is a leading enterprise in the Internet home furnishing field. It creates profit growth points through refined product operation, steady market and channel expansion, and high-quality brand building, and is optimistic about the company's long-term growth space. Maintain a “Highly Recommended” rating.

Q1 Revenue growth was high, profit margins fluctuated in the short term, and it is expected to recover in the future. The 24Q1 company achieved revenue of 1.84 billion/+45.3%, net profit of 100 million/ +15.1%, net profit of not returned to mother, and net profit of 96 million/ +13.6%; the company's revenue continued to grow rapidly, which is expected to benefit mainly from the contribution of the company's new and sub-new product series and good growth performance in the US and European markets. The 24Q1 company's net interest rate was 5.5% /-1.4pct, which fluctuated slightly due to short-term factors. It is expected to be mainly due to exchange losses due to fluctuations in foreign exchange rates, rising European shipping costs, and an increase in final delivery fees. In terms of shipping rates and end range, the company continues to sign the long-term agreement to lock prices and increase the spontaneous ratio + third-party express courier cooperation+Amazon VC model cooperation, which is expected to continue to reduce the interference of sea freight rate fluctuations and optimize the efficiency of last-haul delivery.

In '24, we will focus on reunifying the brand, improving supply chain and contract fulfillment efficiency, and focusing on breaking through the US market. In terms of brand, the company will clarify the Group's main brand, SONGMICS HOME, to achieve concentrated and efficient traffic conversion, and further clarify the three values of brand design, cost performance and convenience. In terms of products, investment in R&D will be increased, product layout will be enriched, and serialized products will be created. In the supply chain, the company will focus on improving the efficiency of production and logistics and strengthening flexible supply. The fulfillment side will continue to optimize the warehouse network layout and improve the efficiency of last-haul delivery.

In terms of market layout, while focusing on stabilizing the European market, it also breaks through the US market.

Due to the impact of shipping costs, gross margin declined slightly in the short term. The company's 24Q1 gross margin was 36.0% /-0.8 pct. It is expected that supply costs will be optimized due to the integration of the company's supply chain, but the gross margin has declined due to factors such as sea freight and last-end delivery cost increases due to the Red Sea incident. The 24Q1 company's expense ratio was 30.4% /+1.9pct, of which the sales expense ratio was 24.4% /+1.6pct, the management expense ratio was 3.7% /+0.0pct, the financial expense ratio was 1.4% /+0.6pct, the R&D expense ratio was 0.9% /-0.3pct, and the net interest rate was 5.5.% /-1.4pct.

Investment advice. The company is a leading enterprise in the Internet home furnishing field. It creates profit growth points through refined product operation, steady market and channel expansion, and high-quality brand building, and is optimistic about the company's long-term growth space.

We expect the company's 2024E/25E/26E net profit to be $516/6.28/757 million yuan, respectively, maintaining the “Highly Recommended” rating.

Risk warning: sea freight fluctuations, exchange rate fluctuations, international trade frictions, third-party e-commerce platform operating risks