Incident: Minhua Holdings released the FY2024 Annual Report. The company achieved revenue of HK$18.411 billion in FY in 2024, up 6.11% year on year; net profit to mother was HK$2.32 billion, up 20.23% year on year. The company's FY2024H2 achieved revenue of HK$9.474 billion, up 17.5% year on year; net profit to mother was HK$1,166 million, up 41.75% year on year.
Overseas markets quickly recovered, and the H2 offline market continued to pick up
By region, FY2024 achieved revenue of HK$119.87, 42.84, and HK$1,195 billion for the whole year, respectively, with year-on-year increases of 8.1%, 2.3% and 2.9%, accounting for 65.0%, 23.3%, and 6.5% respectively. Among them, FY2024H2 achieved revenue of HK$61.88, 22.47, and HK$663 million respectively, with year-on-year increases of 5.10%, 38.3% and 35.1%, accounting for 70.03%, 23.76% and 6.20% respectively. The European and American markets have been accompanied by an easing of inflationary pressure, a drop in inventory levels, an improvement in real estate sales, and a recovery in software demand. Under a low base, the company achieved a beautiful growth rate. The FY25H1 boom continued, compounded by the impact of the low base, and continued growth can be expected. The company continues to expand market channels, has production capacity, quality and cost advantages, gradually improves the product line layout, meets the requirements of newly expanded customers with diverse product styles, and is expected to further expand its market share.
In the Chinese market, as of March 31, '24, the company was actively deploying offline channels, with a net increase of 765 to 7,236 specialty stores (excluding style and Suning) compared to the end of FY2023. The annual revenue of FY2024 offline and e-commerce channels was HK$815 and HK$2.62 billion, up 10.5% and 6.3% year on year; FY2024H2 offline and e-commerce revenue increased 15.3% and -5.9% year over year respectively. Due to the slowdown in traffic on traditional e-commerce platforms, H2's e-commerce revenue growth rate has slowed.
Domestic sofa sales are growing rapidly, and the penetration rate of functional sofas is expected to accelerate by category. The company's FY2024 annual sofas and accessories, bedding and ancillary products, other products, and Home Group business achieved revenue of 126.59, 29.88, 18.20, and 674 million HK$674 million respectively, up 2.9%, 9.6%, 28.4%, and 10.0% year-on-year. Among them, the company's FY2024H2 sofas and accessories, bedding and ancillary products, other products, and Home Group business achieved revenue of HK$64.82, 14.96, 9.13, and 376 million HK$376 million respectively, up 15.94%, 11.92%, 6.68% and 6.71% year-on-year. Excluding Home Group's business, the total sales volume of FY2024's sofa products for the year was about 1.920,000 sets, up 26.6% year on year. Among them, the number of sofa sets sold in China increased from 891,000 sets in FY2023 to 1.12 million sets, an increase of about 25.7% year on year, and the number of sofa sets exported increased 28.0% year on year.
Raw material costs have declined, and gross margin has rebounded quarterly
In terms of profitability, the overall gross margin of the FY2024 company for the whole year was 39.4%, up 1.0 pct year on year. Among them, FY24H2's gross margin was 39.6%, up 1.4 pct year on year. The continued recovery in gross margin is mainly due to falling raw material costs and improving the quality and efficiency of the company's internal management. The average unit price of leather/steel/wood chipboard/calico fabric/chemicals/ packaging materials of FY2024's main raw materials was -10.1%/-8.1%/-24.6%/-6.0%/-2.8%/-8.9% year-on-year.
In terms of expenses for the period, the FY24 sales expense ratio decreased by 1.1 pct to 18.0% year on year. The main reason for the decline was the reduction in shipping costs. The management fee rate decreased by 0.8 pct to 5.2% year over year.
Under the combined influence, the net interest rate of FY2024 increased 2.3 pct year over year to 12.0%.
Investment advice: As a leader in the functional sofa industry and a leader in soft home furnishings, Minhua Holdings has solid fundamentals, high dividends continue to give back to shareholders, and the company's refined management capabilities are steadily improving, and domestic and foreign sales are gradually recovering. We continue to be optimistic about the company's long-term investment value potential.
We expect the company's FY2025-2027 main business revenue to be HK$208.77, 230.31, and HK$25.497 billion, up 11.07%, 10.32%, and 10.71% year over year; net profit to mother will be HK$27.48, 32.48, and HK$3.774 billion, up 19.37%, 18.18%, corresponding PE 10.0x, 8.5x, 7.3x, giving FY25 12.8xPE with a target price of HK$9.10, maintaining the buy-A investment rating .
Risk warning: Risk of epidemic fluctuations exceeding expectations; risk of domestic sales development falling short of expectations; risk of large fluctuations in raw material prices and exchange rates.