Description of the event
In 2023, the company achieved revenue/net profit/net profit deducted from non-net profit of 4.900/0.65/039 billion yuan, with a year-on-year loss; of these, 2023Q4 corresponded to 13.88/0.61/60 billion yuan, a decrease of 11%/20%/1%; 2024Q1 achieved revenue/net profit/net profit deducted from non-net profit of 7.76/-0.87/0.95 billion yuan, and revenue decreased by 4%.
Incident comments
The home furnishing industry boom was under pressure in 2023. The company focused on customization+supporting business, and the “1+N+Z” channel system was continuously optimized.
The company's revenue fell 8% in 2023, of which: 1) By product: custom home/furnished home/furnished business revenue was -9%/+8%/-26%. The company focused on customized+supporting business. Among them, the “choose as you like” whole-house custom package model was an important gripper, driving the positive growth of supporting home furnishing products; 2) The revenue of the franchise/direct-management/assembly model also fell 5%/19%/22%. The company promoted direct franchise transformation in direct-managed cities (the number of direct-run stores decreased net to 26 to 46 in 2023) The revenue of the direct management model has dropped significantly ; The pressure on revenue from the assembly model is related to shrinking the self-operated assembly business strategy to the three regions of Guangzhou, Foshan, and Shenzhen to use a refining model, yet franchisees are still actively promoting cooperation among assembly companies.
In 2023, the company actively promoted cost reduction and efficiency improvement and operational quality improvement. Gross margin increased by 0.4 pcts in 2023. Among them, the franchise/direct operation/assembly model was about +3.2/-0.6/-1.9 pcts year on year, respectively. The company actively continuously optimized manufacturing costs and central and back-office management through process optimization and automation system applications to help hedge the negative impact of the increase in the share of ancillary products and the decline in direct management share on gross margin; in 2023, the sales/management/R&D/finance expense ratio was -1.6/+0.4/-0.3pcts year-on-year, sales expenses were effectively controlled, and wage compensation/promotion expenses were reduced by 14 %/ 13%. The number of employees at the end of the year after organizational changes decreased by 18% compared to the beginning of the year, and the annual per capita income was +12%. In 2023, the return to mother/deducted non-net interest rate increased by 0.5/1.1 pcts, and profits gradually improved.
2024Q1 revenue was under pressure, and losses narrowed year over year. Q1 revenue also fell 4%, and gross margin/net profit margin was -3.2/+0.6pcts to 27.8%/-11.1% year over year. Among them, the sales expense ratio continued to improve (4.3pcts decrease), or was related to employee optimization.
This year, we will continue to promote the efficiency improvement of the entire channel chain and the deepening of terminal coverage. 1) Directly managed cities: The company promotes the “1 (large store) +N (direct management/franchise store) +Z (integrated assembly store)” model, and the direct management to franchise transformation continues to advance. Ultimately, direct-managed stores will position themselves as superstores and support and empower dealers in multiple dimensions such as logistics and delivery, while speeding up the terminal coverage of multi-format franchisees and expanding the luggage and packaging business. 2) Franchise cities: The company promoted the “1 (general distribution) +N (franchise/distribution store) +Z (integrated assembly store)” model to reduce the comprehensive operating requirements of “N” merchants to promote multi-channel customer acquisition by leveraging the local resources and systematization advantages of “1” merchants (such as warehousing services, etc.). At the end of 2023, the company had 2005 franchisees, including 463 new ones. This year, the company will speed up the process of attracting investment and building stores, and increase the layout of the sinking market.
Focus on the main business of customization+supporting traditional advantages, and strive to promote high-quality development. This year, the company will focus on customizing and supporting fields with traditional advantages, strengthening drainage through various methods such as “optional selection” and “699 packages”, amplifying the competitive advantages of its own supply chain system and information technology system, and delivering a more collaborative and personalized product portfolio. At the same time, investment promotion and channel expansion efforts have been stepped up, and the penetration of retail terminal layouts has been deepened. In particular, efforts have been focused on the luggage channel this year, which has better supported the operational resilience of dealers. The assembly business continues to focus on Guangzhou, Foshan, and Shenzhen, and is guided by model exploration and capacity refinement. The company will continue to promote organizational transformation and optimization, and reduce costs and increase efficiency in all aspects. The company's net profit for 2024/2025 is estimated to be RMB 0.81/120 million, and the corresponding PE is 38/26x.
Risk warning
1. Real estate sales and completion fell short of expectations; 2. The growth of the company's customization and ancillary products fell short of expectations.