Description of the event
The company announced FY2024 results (April 2023 to March 2024), which achieved main revenue/net profit of HK$18.411/2.02 billion, an increase of 6%/20% over the same period, and 11%/26% in RMB terms, respectively. Among them, FY2024H2 corresponded to HK$9474/1,166 billion, an increase of 18%/42% over the same period.
Incident comments
Revenue: Domestic/export sales increased 8%/3% throughout the year, with H2 domestic and foreign sales growth rates improving month-on-month.
1) Domestic sales business: The FY2024 furniture business also increased by 5% (RMB caliber increased 10%), with sofas and ancillary products/mattresses and accessories increasing by 3%/10% respectively (RMB caliber increased 8%/14%), and the mattress category expanded steadily. The sofa business also increased 16% (RMB caliber, with volume/price differences +26%/-8%) after excluding disturbances caused by declining revenue from accessories and increased after-fact discounts. Looking at furniture by channel, online/offline increased by 2%/6% (RMB caliber also increased by 6%/11%), and the number of brand specialty stores increased net of 765 to 7,236 during the period. Other FY2024 products (iron frames, customizations, etc.) also increased 49%. The FY2024H2 renminbi-caliber furniture business also increased 10% compared to H1. Among them, sofas and accessories/mattresses and accessories increased by 8%/14%, respectively.
2) Export sales business: FY2024 increased by 3% overall, with North America/Europe and other markets/HG increasing by 2%/3%/10% respectively. Among them, North America actually grew faster after reverting to the impact of shipping surcharge revenue in the previous period. FY2024H2 has recovered well in North America/Europe and other markets, increasing 38%/35%, respectively. It is estimated that in the recent past, export sales will continue to be superior to domestic sales.
Profit: Profit improvement was achieved even under domestic sales concessions, mainly due to lower raw material prices and significant manufacturing advantages. FY2024's apparent gross margin/net profit to mother improved by 0.9/1.5pcts, and comparable gross margin after reverting to the impact of shipping surcharge revenue in the previous period will be even greater. By region, domestic, North America/Europe and other regions/HG gross margins increased by 0.1/0.7/6.7/5.7 pcts, respectively. Among them, gross margin in North America improved 8.4 pcts after reverting to the above shipping surcharges. Domestic sales profits were affected by strengthened dealer incentives and consumer concessions; lower raw material prices and internal cost reductions significantly contributed to profit improvements. The average unit cost of steel/leather/wrapping paper/chemicals also decreased by 8%/10%/9%/3% during the period. On the cost side, overseas transportation and port expenses improved significantly. The share of export sales decreased by 3.7 pcts throughout the year, and overall sales/management expenses were optimized by 1.1/0.8 pcts. FY2024H2 gross margin/net profit to mother improved by 1.5/2.1pcts, and the profit improvement was superior to H1.
Looking forward to follow-up: 1) Domestic sales: Facing the real estate and consumption environment, the company optimizes and perfects the product matrix from a category perspective by increasing the penetration rate of functional sofas with dividends (the penetration rate of functional sofas increased by 2.5 pcts to 9.7% in 2023), and is also cultivating potential businesses such as mattresses and customization. From a channel perspective, online multi-platform operation goes hand in hand with continuous offline store expansion. 2) Export sales: The improvement trend is expected to continue, including the continuous implementation of the company's own advantages in manufacturing, supply chain, and production capacity.
The company builds high barriers in the brand/product/supply chain, strengthens competitiveness through design, marketing and channel changes, and is optimistic that it will continue to increase its share in the software industry. This year, the company re-sorted out and optimized the product line and brand matrix, and adjusted the product structure in line with consumer trends. At the same time, it emphasized the refined operation of stores on the channel side, continued to strengthen the layout of multi-traffic entrances such as live streaming and cross-industry alliances, and promoted same-store growth, laying a good foundation for long-term development. The net profit due to the company in FY2025-2026 is estimated to be HK$2,6.0 billion or HK$3.0 billion, corresponding to PE of 11/10 times, maintaining a “buy” rating.
Risk warning
1. Real estate sales fell short of expectations; 2. The positive trend in external demand was disrupted; 3. The company's channel expansion and operation fell short of expectations.