Introduction to this report:
The company relies on cost control and category expansion to achieve revenue expansion and profit growth. It is expected that domestic sales will increase channel decline to seize share in the trade-in market, and export sales will actively expand coverage of gaps in customers and fields, and is expected to grow steadily.
Summary:
Conclusion: Considering that there is still room for improvement in the penetration rate of functional sofas, the company's domestic and foreign sales are working together, and the brand influence continues to increase. The company's EPS forecast for the 2025-2026 fiscal year was raised to HK$0.71/0.85 (previously HK$0.68/0.77), and the EPS forecast for the 2027 fiscal year was added to HK$1.01, maintaining the target price of HK$8.84, maintaining the “increase” rating.
Products continue to be iterated, and profits are rising steadily. The company insisted on product promotion and category expansion, increasing investment in the field of functional sofas, and focusing on increasing the growth of mattresses and bedding categories. In fiscal year 2024, the company achieved revenue of HK$18.41 billion/+6.1%, RMB +10.8% YoY, achieving net profit of HK$2.30 billion/+20.2%, and RMB +25.5% YoY. The company improved its profitability through internal cost management and low raw material advantages. The gross margin and net interest rate increased in fiscal year 2024, with a gross profit margin of 39.4% /+0.9pct and a net profit margin of 12.5% /+1.5pct.
Domestic sales are growing steadily, and store expansion continues to increase coverage. In the 2024 fiscal year, the company's revenue in China was HK$11.98 billion/+8.1%, the North American market revenue was HK$4.28 billion/+2.3%, and revenue in Europe and other overseas regions was HK$1.2 billion/+2.9%, and domestic sales grew steadily. In the domestic sales market, new homes account for about 40%, and old homes account for about 60%. It is expected that in the future, as demand for replacement stocks will continue to grow, the share of demand for new and old homes is expected to trend to 3:7. It is expected that the company will continue to strengthen product development, upgrading and brand marketing, and promote consumption transformation through trade-in and other activities. The company is actively increasing channel coverage by opening stores. The number of stores increased by 765 over the same period in fiscal year 2024. It is estimated that 700-800 stores will be opened in FY2025. It is estimated that about 60% will be distributed in Tier 1 and 2 cities, and the rest will be distributed in Tier 3 and 4 cities, driving sales growth through sinking markets and empty channel coverage. In the export market, it is expected that the company will continue to expand its sales team and actively cover diverse customers to seize growth.
Active dividends are given back to shareholders, and the high dividend value is highlighted. The company paid HK30 cents per share in fiscal year 2024, with a dividend ratio of 51%. The repurchase of HK$230 million brought the total share of repurchases and dividends to 61%.
According to the profit forecast in this report, the company's net profit for FY2025 is expected to be HK$2,752 billion. Assuming a 51% dividend ratio, the dividend rate for FY2025 can reach 5%.
Risk warning: Brand power has fallen short of expectations, and the scale of offline channels has shrunk.