FY2024 Results Exceed Market Expectations
The company announced financial results for the 2024 fiscal year: 2HFY24/FY24 achieved operating income of HK$9.474/18.411 billion, up 17.51%/6.11% year on year, net profit of HK$1,166/ 2.32 billion, up 41.75%/20.23% year on year. Overseas revenue and profitability improved rapidly, and the performance exceeded market expectations. The company plans to pay HK30 cents per share, with a dividend payout ratio of 50.7%. We expect the company's performance to improve steadily as domestic channels advance and overseas demand recovers.
Development trends
1. 2HFY24 domestic sales revenue also increased 11%, export revenue also increased 38%, and domestic and foreign sales revenue fully recovered. 1) Domestic sales: 2HFY24/FY24 Domestic sales revenue of HK$59.82/11.987 billion, up 11.2%/8.1% year on year; 2HFY24/FY24 excluding iron frames achieved revenue of HK$53.87/10.769 billion, up 9.2%/4.8% year on year, of which sofa revenue was HK$38.90/7.781 billion, up 4.8%/3.1% year on year; 2) Export sales: 2HFY24/ FY2024's revenue from the North American market was HK$2,247 million, up 38.3%/2.3% year on year; revenue from European and other overseas markets was HK$663/1,195 million, up 35.0%/2.9% year on year, and HG revenue was HK$376/674 million, up 12.9%/10.0% year on year. We expect the company's performance to improve further along with the renewal of domestic inventory and the increase in demand for smart homes, combined with overseas customer expansion and production capacity release.
2. Raw material prices have declined, cost control capacity has improved, and profitability continues to improve. The company's FY2024 gross margin was 39.37%, +0.88ppt, mainly due to lower raw material prices, sales expense ratio 18%, year-on-year -1.12ppt, management fee ratio 5.19%, year-on-year -0.84ppt, financial expense ratio 1.09%, year-on-year +0.14ppt. Under the combined influence, the net profit margin was 12.51%, +1.47ppt year over year. We expect the company's profit level to continue to improve as the company continues to reduce costs and increase efficiency.
3. Offline stores are expanding steadily, and online sales continue to be empowered. 1) Offline: 2HFY24/FY2024 The company's stores increased net by 348/765 to 7,236, and offline store revenue increased 15.3%/5.8% year-on-year to HK$40.51/8.149 billion. The company continued to lay out declining channels, focusing on increasing same-store sales growth and promoting refined store management. 2) Online: 2HY24/FY2024 The company's online revenue was HK$1,335/2,621 million, or -5.9%/1.8% year-on-year. We believe the company is expected to channel offline stores through e-commerce sales platforms in the future to further improve its brand strength and sales conversion rate.
Profit forecasting and valuation
We kept our net profit forecast of HK$2,774 million unchanged for FY2026 and introduced a net profit forecast of HK$3.274 billion for FY2026. The current stock price corresponds to 10/8 times P/E for FY2025/FY2026. Maintaining an outperforming industry rating, considering the valuation switch, and raising the target price by 13% to HK$9.00, corresponding to FY2025/FY202615/13 times P/E, with 30% room for growth compared to the current stock price.
risks
Prices of raw materials fluctuated greatly, and the decline in real estate sentiment exceeded expectations.