Conclusion: Considering that downstream demand is still recovering, the 2024-2025 EPS forecast was lowered to 5.23/5.99 yuan (originally 5.89/6.58 yuan), and the 2026 EPS forecast was added to 6.91 yuan. Referring to comparable company valuations, the target price was lowered to 85.77 yuan (originally 85.95 yuan) to maintain the “gain” rating.

Event: The company achieved revenue of 22.782 billion yuan/ +1.35% in 2023, and achieved net profit of 3,036 billion yuan/ +12.92% to mother. 2024Q1 achieved revenue of 3,621 million yuan/ +1.43%, and net profit to mother of 218 million yuan/ +43.00%. The performance was in line with expectations.

Direct sales channels are growing beautifully, and the effects of category integration are gradually showing. The company's direct revenue in 2023Q4 was +17.44% year-on-year, and 2024Q1 direct revenue was +66.95% year-on-year. As a pioneer in household strategy, the direct management channel continues to verify the results of exploring new models. The company's 2023Q4 gross profit margin was 34.6% /+4.11pct, and the net profit margin was 11.63% /+0.44pct. The lower net margin growth was mainly due to the 2023Q4 sales expense ratio and management expense ratio of +3.01pct and +1.32pct, respectively. The company optimized the number of SKUs through category integration, and centralized procurement of raw materials reduced costs and efficiency. 2024Q1 had a gross profit margin of 29.98% /+3.30pct and a net profit margin of 6.03% /+1.88pct. The narrowing of net interest rate growth was mainly due to the 2024Q1 sales expense ratio and R&D expense ratio of +1.84 pct and +0.98 pct, respectively.

Store operations are continuously optimized, and organizational transformation results can be expected. In the context of pressure on terminal demand, the company took the lead in promoting organizational structure transformation and accelerated the major household business format. The overall number of 2024Q1 stores was reduced by 148, including 24 new Platinum stores. It is expected that the overall strategy will be implemented through high-end customization, driving the increase in customer unit prices. In the face of a stock housing market with more fragmented traffic, sales transformation is expected to be driven by point-to-point drainage through channels such as handbags and old upgrades, and performance is expected to grow steadily.

Risk warning: Industry demand is under pressure; the growth rate of the retail household business falls short of expectations.