Incident: The company announced FY2024 results, and the profit side's performance exceeded expectations. The company's FY2024 achieved operating income of HK$18.41 billion, +6.1% YoY (RMB +10.8% YoY); realized net profit to mother of HK$2,302 billion, +20.2% YoY (+25.5% YoY). FY2024's other profit and loss was a net loss of HK$304 million, mainly affected by profit and loss from changes in the fair value of financial assets. FY24H2 achieved operating income of HK$9.47 billion, +17.5% YoY; realized net profit to mother of HK$1,166 billion, or +41.8% YoY.
Domestic sales have gradually recovered, sofa sales have grown beautifully, and single store pick-up has stabilized. FY2024 China's market revenue was HK$11.987 billion, +8.1% year over year (RMB caliber: +12.8%, H1/H2 +11.0%/+14.8%, respectively); excluding iron frame business revenue of HK$10.769 billion, +4.8% year over year (RMB caliber: +9.5% YoY, H1/H2 +10.2%, respectively).
1) View by channel: The repair of offline channels is accelerating, and single-store delivery is gradually stabilizing. In RMB terms, offline channel FY24 revenue was +10.5% (H1/H2 +6.3%/+15.1%, respectively); online channel FY24 revenue was +6.3% YoY (+17.5%/-2.6% for H1/H2, respectively). Offline channels have been repaired. In particular, there was a marked acceleration in the second half of the fiscal year. By the end of March '24, the number of the company's offline stores was 7,236, with a net opening of 765 stores, and FY24's single store pickup volume was 1,035,000 yuan, which was only -1.2% year-on-year (-3.9%/+3.0% for H1/H2, respectively). Store development was in line with expectations, and single-store pick-up gradually stabilized.
2) By category, sofa sales have grown beautifully. In RMB terms, FY24 revenue for sofas and accessories was 7.7% YoY (+7.1%/+8.2% for H1/H2 respectively); in terms of split volume price, FY24 sofa sales were +25.7% YoY (+27.6%/+24.0% for H1/H2, respectively); ASP (with supporting facilities) was -14.3% YoY (-16.0%/-12.7% for H1/H2, respectively). Excluding accessories, FY24's revenue in the sofa category alone was +15.7% YoY, and ASP -7.9% YoY (all in RMB caliber). FY24 revenue for mattresses and accessories was +10.6% year-on-year (of which H1/H2 revenue was +13.3%/+7.8%, respectively).
Export sales improved sharply in the second half of the fiscal year due to a low base. FY24 North American market revenue was HK$4.284 billion, of which H1/H2 revenue was -20.5%/+38.3% year over year; European and other market revenue was HK$1,195 million, +2.9% year over year, of which H1/H2 was -20.6%/+35.1% year over year; HG Group revenue was HK$613 million, -9 year over year.
1%, of which H1/H2 were +6.7%/-20.3% year-on-year respectively.
Declining costs and improving profitability under cost control. FY24's gross margin was +0.9pp to 39.4% year-on-year, with FY24H1/FY24H2 gross margins of 39.1%/39.6% respectively. The core driving force behind the increase in gross margin was the decline in raw material costs. The average unit price of leather/steel/wood chipboard/printed fabric/chemicals/packaging materials of FY23's main raw materials was -10.1%/-24.6%/-6.0%/-2.8%/-8.9% year-on-year, respectively. By market, 1) The gross margin of the Chinese market was +0.1pp to 40.4% year-on-year, and the contribution of declining costs was partially offset by factors such as strengthened promotions and dealer incentives. 2) North American market: gross margin +0.7pp to 37.1% year over year. If the impact of shipping surcharges is excluded, the actual gross margin is +8.4pp year over year. 3) European and other overseas markets: gross margin +6.7pp to 30.3% year-on-year. 4) HG Group: gross margin +5.7pp to 29.2% year over year. In terms of cost ratio, FY24 sales expense ratio was -1.1 pp to 18% year on year. The main reason for the decline was the share of overseas transportation and port fee revenue -1 year over year.
4pp to 3.2% was due to lower shipping costs; marketing expenses accounted for a slight increase of 0.4 pp to 3.1%. The management cost ratio was -0.8pp to 5.2% year-on-year, and the cost control effect was obvious. Furthermore, income tax expenses were -5.7% YoY to HK$468 million, and the actual tax rate was -4.7pp to 16.4% YoY.
Investment advice: The company is a leading functional sofa, and the penetration rate of functional sofas is expected to continue to increase under the trend of home intelligence; in the short term, the company's domestic and export sales are expected to continue to recover. Net profit from FY to mother is estimated at HK$25.98, 28.39, and HK$3.087 billion in 2025-27 (the previous value of FY2025-26 was HK$26.94/3,039 billion, adjusted according to FY2024 results), PE is 5/5/4 times, maintaining a “buy” rating.
Risk warning: Downstream demand falls short of expectations; market competition increases risk, etc.