Description of the event

Q1 The company achieved revenue/net profit/net profit deducted from mother of 36.21/2.18/143 million yuan, an increase of 1%/43%/10% over the same period.

Incident comments

Q1 Retail sales are under pressure, and the bulk contribution is a major increase. It is estimated that pure wardrobe caliber may have increased. Q1 The company's revenue was +1%, of which: 1) sub-channels: retail/bulk/overseas were -3%/+19%/+46%, retail channels declined slightly, and overseas business continued to grow well under a low base; 2) By category, kitchen cabinets/wardrobes and accessories/bathroom/wooden doors/other main businesses were -2%/-4%/+10%/+5%/+334%. It is estimated that products are still growing, and that bathroom and wooden doors benefit from everyone's wooden doors. The strategy continues to grow. Q1 Contract liabilities and advance payments totaled about $1.64 billion, a year-on-year decrease of about 22%, which is related to the overall weak trend in household consumption.

Q1 The decline in the share of ancillary products combined with continued cost reduction and efficiency improvements boosted the gross profit margin of the wardrobe business. Cost-side control was effective, and overall profit improved year-on-year. Q1 gross margin increased by 3.3 pcts, with retail/bulk/overseas business +5.4/-4.1/+2.8 pcts year on year; category dimensions, kitchen cabinets/wardrobes and accessories/bathroom/wooden doors/other main businesses were -3.8/+7.9/+4.2/+7.3/+5.0 pcts year on year. Among them, the proportion of accessories with lower gross margin compared to pure wardrobes declined, which contributed positively to the improvement in gross margin of the wardrobe and accessories business. At the same time, the year-on-year price reduction of raw materials and optimization of manufacturing efficiency also contributed to the improvement of gross margin. Q1 Sales/management/R&D/finance expense ratios were +1.8/-0.5/+1.0/+0.5pcts year-on-year, and the attribution/deduction of non-net interest rates increased 1.7/0.3 pcts.

Full-year outlook: Complete and retail households continue to advance, focusing on growth and increasing share. The company expects revenue growth of 5% to 10% this year, and profit of about +5%. Looking at it separately, refurbished households continued their superior expansion trend through store expansion. The cultivation of an accelerated retail model led to rapid volume sales. Traditional retail grew steadily, and maintained smooth operation under strict risk control. The company adheres to the Big Home Path development path. The three major business divisions each take the lead in exploring and optimizing the product big household/full home furnishing model, and focus on boosting customer order value for each channel and digging deeper. In particular, under the new city-centered operating model, through a regional merit selection mechanism, unblocking the integration and optimization of various categories and channels, and formulating more competitive and aggressive price strategies according to local conditions around the company's management, manufacturing, supply chain, etc., to strengthen terminal competitiveness.

Refined operation, multi-traffic entry layout, and active empowerment of agents. The company continues to promote multi-traffic entry layout, such as point-and-point drainage in the form of backpacking, local reform/old reform, alliance cooperation, etc., to build an online traffic triangle system to improve the ability and conversion efficiency of online traffic. At the same time, the company will increase its support for the agent system this year, including empowering dealers to improve service quality on the delivery side, such as optimizing the logistics warehousing system to achieve “perfect, complete, timely, and low cost” delivery, and enhance the consumer experience.

The value of dividend investment is increasing at this stage, and I am still optimistic that the company will continue to realize its growth potential from the inside out under the new household structure in the long term. The company's dividend rate in 2023 was raised to 55%, corresponding to the current dividend rate of about 4.3%, and a total of 310 million yuan of shares were repurchased throughout the year (excluding transaction fees). At the current stage of real estate completion and construction, the company brings equity returns by increasing the dividend rate; looking ahead to the long-term space, home consumption will be realised and returned to the logic of increasing share. Oupai is in the “big home” deepening reform stage. It believes that management's ability to innovate, feedback, and iterate can achieve a comprehensive “big home” strategy, creating a core competitiveness for the next stage of continuous share growth. The company's net profit for 2024-2025 is estimated to be 31.9/3.60 billion yuan, corresponding to PE of 12/11x, maintaining a “buy” rating.

Risk warning

1. Real estate sales and completion fell short of expectations; 2. The effect of the company's channel transformation was lower than expected.