Key points of investment:
The company announced its 2023 annual report and 2024 quarterly report, and the results were in line with expectations. 2023 Annual Report: Revenue of 13.512 billion yuan in 2023, up 4.1% year on year; realized net profit of 1.3 billion yuan, down 21.1% year on year; deducted non-net profit of 1.23 billion yuan, down 27.5% year on year; of these, Q4 single quarter revenue was 3.68 billion yuan, up 6.1% year on year, and net profit to mother was 149 million yuan, up 31.6% year on year, after deducting non-net profit of 46 million yuan, down 33.1% year on year. The company achieved sales (GMV) of 117.6 billion yuan in 2023, an increase of 11.7% over 2022. 2024Q1:2024Q1 achieved revenue of 3.137 billion yuan, down 3.4% year on year; realized net profit of 349 million yuan, down 22.9% year on year; deducted non-net profit of 373 million yuan, down 12% year on year. A cash dividend of 0.62 yuan is distributed for every 10 shares, with a dividend rate of 29.9%, corresponding to a dividend rate of 2.1% based on the closing price of May 14, 2024.
The main household business is actively seeking changes, and subsequent results are expected to gradually become apparent. In 2023, the company's leasing and management business achieved revenue of 6.428 billion yuan, a year-on-year decrease of 11.2%, mainly due to a net decrease of 5 stores in 2023, and the company provided certain rent relief to support in-store dealers. By the end of 2023, the company had 86 direct-run stores, 3 new stores were added during the year, and 2 were closed. In addition, Changchun's “China Business World” was divided into shopping centers according to the business format and joined 5 home furnishing stores. In 2023, the company's franchise management business achieved revenue of 509 million yuan, a year-on-year decrease of 19.1%. By the end of 2023, the company had 328 franchised stores, added 9 new stores during the year, closed 23, and switched to 5 franchised home furnishing stores. In 2023, the company innovatively proposed a “one store, two systems” investment model with fixed rent and sales division, which not only formed a risk-sharing and benefit-sharing relationship with merchants, but also helped break through the ceiling of the company's operating income under the traditional fixed rent model. The reforms of the Harbin Pioneer Store and the Sichuan Neijiang Store had remarkable results. In addition, the company is actively exploring the transformation and upgrading of home stores to smart home experience centers, creating a new smart living scenario integrating “people, cars, and home”. By the end of 2023, the company's home stores had 1,357 smart home brands, with a business area of 1.357 million square meters, and sales exceeding 161 billion yuan. At the same time, the company actively embraces the new marketing model and carries out diversified marketing activities. The company plans and organizes 13 large-scale group-level events throughout 2023, driving sales of 79.07 billion yuan, an increase of 16.7% over the previous year.
Pan-home furnishing industry chain layout to improve overall operational efficiency. 1) Product sales: In 2023, product sales achieved revenue of 5.556 billion yuan, an increase of 31.7% over the previous year, mainly driven by the smart home business. Actually, Smart Home opened 57 new stores in 2023, and achieved annual sales exceeding 4.4 billion yuan, an increase of 58.4% over the previous year. By the end of 2023, there were more than 200 cooperative brands and 120,000 connected devices with EasyHome. 117 stores had been opened in 15 provinces and cities across the country, and the number of registered app users exceeded 200,000. 2) Decoration business: The decoration business achieved revenue of 408 million yuan in 2023, an increase of 12.7% over the previous year.
The company has built a self-operated smart home improvement service platform “Easyhouse”, with the middle and high-end as its business position to provide consumers with one-stop decoration package services integrating design, experience, construction, material selection and after-sales. With “zero additional decoration” and “butler service” as its core competitiveness, the company provides consumers with high-quality products and services while empowering home furnishing stores. 3) Designers per square meter per house. By the end of 2023, the number of registered users of designers worldwide exceeded 14.77 million, an increase of 19% over the previous year. The number of design cases exceeded 32.686 million, an increase of 18.5% over the previous year. The number of models exceeded 12.44 million, a year-on-year increase of 27.4%.
4) The home service platform “Dongxin” is dedicated to breaking through the difficulties and blockages of the “last meter” of home service and creating a new traffic source for household recycling consumption. The company uses its advantages as a channel traffic gateway to gradually expand into the pan-home industry chain, including design, home improvement, smart home, smart logistics, and post-home improvement services, and is expected to contribute to future performance flexibility; in a longer-term dimension, the construction of the pan-home industry chain effectively enhances linear service capabilities, realizes the full life cycle layout of consumer homes, and creates value for users. As the new business gradually matures, it is expected to become a new traffic entry point, creating traffic for itself.
The digital transformation has achieved remarkable results, and Dongwo's sales have grown rapidly. The company is leading the digital transformation of the home furnishing industry. Up to now, it has completed the construction of three digital intelligent transformation grippers: “Dongwo”, “Actually Designer”, and “Actually Smart Home”, leading the industry in digital innovation capabilities. By the end of 2023, the total number of online stores in Dongwo reached 934, an increase of 173.1% over the previous year. There were more than 100,000 registered merchants, an increase of 101.33% over the previous year. The number of registered users exceeded 25 million, an increase of 95.48% year over year. The average monthly activity was 3.9051 million, up 316.67% year over year. Platform transactions (GMV) reached 97.4 billion yuan in 2023, an increase of 173% over the previous year. In addition, Dongwo also opened the Macau Station and 2 overseas branches in Singapore and Cambodia in 2023, creating a solid digital foundation for the company's international business development.
The home furnishing store industry has a broad space, and the national chain enterprises have a smooth market promotion logic. The company contributed to steady growth through regional expansion and channel decline. Furthermore, the company gradually expanded from the main store business to the pan-home furnishing industry chain, including design, home improvement, smart home, intelligent logistics, and post-home improvement services, and improved operational efficiency through new digital retail. The ability to serve merchants, consumers and brands continued to increase, driving single store growth. Considering that demand for terminals is still slowly recovering, and the company provides certain rent relief to help dealers in the market, the company lowered its 2024-2025 net profit forecast to 14.38/1,707 billion yuan (previous value was 1,892/2.61 billion yuan), and the 2026 net profit forecast was added to 1,792 billion yuan, up 10.6%/11.8%/11.5% year-on-year respectively. Corresponding to 2024-2026 PE was 12.9/11.6/10.4 times. The previous company's stock price was sufficient For the correction, refer to 3 comparable companies with similar market positions in the home furnishing industry (Gujia Home, Wrigley Home, and Mousse Co., Ltd.). The average PE in 2024 was 15.8X. The company's current market value corresponds to an increase of 22.4%, so it still maintains a “buy” rating.
Risk warning: The recovery in terminal consumer demand is slow.