The company's recent situation

Recently, the company held an investor exchange event. The company will continue to promote household strategies, focus on high-end brand positioning, and deepen omni-channel operations, accelerate product iterative upgrading, and enhance profitability through cost reduction and efficiency and supply chain optimization. According to the employee stock ownership plan issued by the company in 2023, based on 23, the revenue target trigger values for 24/25 are 5%/10%, respectively, and the target values are 8%/16%, respectively.

reviews

Profits in 1. 23 were under pressure, and the results of the 1Q24 business adjustment were beginning to show. Focus on the subsequent recovery in performance. Revenue in '23/1Q24 -19.78%/+15.86%, net profit to mother --49.6%/+5.35%, net profit without return to mother --36.32%/+426.1% YoY; after excluding the influence of Qianchuan, Hubei in '23, revenue/net profit/net profit without return to mother was -10.52%/-7.84%/-31.57%; performance was in line with market expectations. The decline in performance in '23 is mainly due to the slow recovery of the real estate industry and weak consumer confidence. We believe that with the continuous improvement of the company's brand power under the household strategy, combined with improved omni-channel layout and iterative product upgrades, the performance is expected to pick up.

2. The cost ratio has increased, and the gross margin has remained stable. The company's gross margin in '23/1Q24 was -0.09/-2.36ppt; after excluding the influence of Qianchuan in Hubei, the gross margin was +0.27ppt year on year, rising steadily. On the cost side, the cost ratio for the 23-year period was +4.42ppt, of which the sales/management+R&D/finance expense ratio was +2.78/+1.38/+0.25ppt year over year. The cost ratio for the 1Q24 period was -4.36ppt, of which the sales/management+R&D/finance expense ratio was -1.48/ -2.25/ -0.63ppt year-on-year. Under the combined influence, the net margin for the year 23/1Q24/4Q23 was 9.59%/3.14%/6.13%, -5.68/-0.31/-1.05ppt. We expect cost reduction and efficiency gains to be further demonstrated in the future as the company promotes digital transformation, refined management and supply chain optimization.

3. The omni-channel strategy continues to be deepened, and store upgrades and product iterations drive revenue growth in core categories.

1) Channel situation in '23/1Q24: ① Direct management: year-on-year revenue -13.77%/+17.27%. As of 1Q24, the company had 14 direct-run stores, the same as at the end of 23; ② Distribution: Revenue -14.22%/+6.31% year-on-year. As of 1Q24, the company had 1,868 distribution stores, a net decrease of 14 from the beginning of '24; ③ Bulk: Revenue +37.68%/+281.42% year-on-year, mainly due to an increase in the completion and acceptance of housing enterprise projects. 2) Revenue by category in '23/1Q24: -12.31%/+13.12% for wardrobes, +2.85%/+60.42% for cabinets; due to brand switching adjustments, door and window revenue was -86.09%/-77.12%. We believe that as the company continues to optimize its customer structure, grow its direct sales and distribution channels, and accelerate product iteration and matrix expansion, performance is expected to improve further.

Profit forecasting and valuation

Considering the pressure on demand for home improvement, we lowered our 24-year profit forecast by 21% to 247 million yuan, and introduced a 25-year profit forecast of 276 million yuan, corresponding to 11/10 price-earnings ratio in 24/25, maintaining an industry performance rating. Considering rising market risk appetite, we kept the target price of 12 yuan unchanged, corresponding to 15/14 times the price-earnings ratio in 24/25, which has 38% room to rise compared to the current stock price.

risks

The decline in the real estate industry has exceeded expectations, competition has increased risks, and raw materials have fluctuated greatly.