The company released its 2024 annual report
FY24's revenue was HK$18.4 billion, +6.1% year over year, net profit to mother of HK$2.3 billion, +20.2% year over year. Growth in the Chinese market slowed, consumption downgraded clearly, and overseas market orders showed a trend of low to high. Taken together, revenue and profit growth was steady.
FY24 paid out HK$1.17 billion (dividend ratio of 50.7%) and repurchased HK$230 million, with a total dividend ratio of 60.7%, continuing to maintain a steady high dividend.
Reduce costs and increase efficiency & lower raw material prices, optimize profitability
FY24 gross profit margin was 39.4%, +0.9pct year on year, net profit margin 12.5%, +1.5pct year on year; internal cost reduction and efficiency and declining raw material prices led to improved profitability (leather/steel/wood chipboard/calico, chemicals/packaging paper unit costs were -10%/-8%/-25%/-6%/-3%/-9%, respectively).
China: Revenue bucked the trend, and the penetration rate of functional sofas increased steadily. FY24 China's revenue was HK$12 billion, +8.1% year over year (RMB +12.8% year over year), achieving steady growth in a market environment where demand is relatively weak.
By category, revenue from FY24 sofas and ancillary products was HK$12.7 billion, with a gross profit margin of 39.6%, and +1.1 pct. Among them, revenue from sofas and ancillary products in China was +3.1% year on year; FY24 bedding and accessories revenue was HK$3 billion, +9.6% year over year, with a gross profit margin of 43.8%, or -0.7 pct year on year.
By channel, as of the end of FY24, there were 7,236 offline stores, +765 compared to the previous year, focusing on developing the sinking market and cost performance series in Tier 1 and 2 cities; traditional e-commerce and live streaming platforms have a strong first-mover advantage, strengthening brand influence through short videos and broadcasts.
In 2023, the penetration rate of functional sofas in the Chinese market rapidly increased to 9.7%, +2.5% over the same period. According to Euromonitor International's prediction, it is expected to exceed 13% after 5 years. In the inventory replacement process, consumers pay more attention to comprehensive considerations of brand, quality and cost performance, and functional homes are gradually being favored for their intelligent and convenient user experience. Currently, China's functional sofa industry is still in a stage of low penetration and high growth potential. It is expected that its market share in the Chinese stock market will continue to grow in the future.
Overseas: Orders are low before and after, and overseas inventory replenishment is expected to resonate
Overseas market demand and order recovery are quite obvious. The company actively participated in the exhibition to expand new customers through new channels, reshaped the sales team to build talent, and strengthen the development, upgrading and iteration of new export products. Overseas revenue maintained rapid double-digit growth in the second half of the fiscal year, making up for the impact of the decline in orders in the first half of the fiscal year. Of this, revenue from North America was HK$4.3 billion, +2.3% year on year; revenue from Europe and others (excluding Home Group) was HK$1.2 billion, +2.9% year over year.
Adjust profit forecasts to maintain “buy” ratings
The functional sofa industry is still in a stage of low penetration and high growth. The company's domestic sales are actively laying out stocks and channels are expanding steadily, and export sales benefit from overseas inventory reserves. The estimated net profit for FY25-27 is HK$25.74/28.67/3.153 billion HK$3.153 billion, respectively (FY25's previous value was 2.57 billion), and the corresponding PE is 11X/10X/9X, respectively.
Risk warning: Real estate recovery falls short of expectations, risk of repayment through engineering channels, increased risk of industry competition, etc.