Introduction to this report:

Fluctuations in the external environment have intensified, and the company is actively consolidating internal skills and promoting changes in the business structure. The three short-term tactics are combined with the three long-term strategies, and the business growth logic is clear.

Key points of investment:

Conclusion: Adjust profit expectations and maintain the “Overweight” rating. Considering the impact of short-term industry uncertainty on performance and the long-term pace of business expansion, we adjusted the 2024-2026 EPS forecast to 2.72/3.26/3.90 yuan (original value 2.80/3.22/3.71 yuan). The company has outstanding advantages in integrating multiple categories. Refer to the comparison company that gave 20XPE in 2025, raising the target price to 65.19 yuan (originally 45.64 yuan).

Short-term tactics: 1) Improving internal efficiency. As scale grows, economies of scale are gradually reflected in procurement and product costs. Furthermore, thanks to innovation in manufacturing technology, the dividends of the company's production model reform have begun to show. 2) Seize structural growth points. Emerging businesses such as cross-border e-commerce and customization have maintained high growth, contributing to structural performance growth. 3) The software business takes the initiative to attack. The software business adopts an active offensive strategy offline, and product profits and cost advantages support the company to actively participate in market competition.

Long-term strategy: 1) Globalization. The company has achieved leadership positions in some overseas markets, such as Western Europe, Australia and New Zealand, and continues to strengthen its product, supply chain, organization and talent base, and emphasizes the development of cross-border e-commerce and private brands. 2) Retail transformation. The company has completed the establishment of approximately 70% of its retail infrastructure and will continue to deepen operations to achieve data-driven and efficiency improvements. The current retail market coverage rate is 30%, and the target is 45%-50% by 2024. 3) Whole-house strategy. The company firmly promotes a full-category strategy. Currently, manufacturers are gradually paying more attention to soft goods. The company is adapting to the trend, strengthening response speed and service capabilities, and customizing the entire packaging channel to speed up store opening. Currently, there are around 230 full-sized stores, and it is expected that there will be more than 450 by the end of 2024. Furthermore, the company has set up an entire center to strengthen the empowerment of construction companies and deepen the cooperation model.

The margin of safety is prominent, and shareholder returns are excellent. The company's PE (TTM) valuation score is historically low of 5%. Assuming a 2024 cash dividend ratio of 60%, corresponding to a dividend rate of 4.4%.

Risk warning: The improvement in downstream demand fell short of expectations, and industry competition intensified.