Written at the beginning: “Globalization, Retailing, and Whole House” strategy, the core competitiveness of building a moat both internally and externally lies in product R&D and manufacturing, and continuous improvement of management and channel capabilities under excellent teams and systems. The company has long invested in the “globalization, retailing, and whole house” strategy, and operating barriers are being strengthened. Domestic sales emphasize retail transformation and category integration. The company's products, channels and supply chain capabilities are continuously improving, consolidating the foundation of the household business format. In addition, single products such as mattresses and custom products are also developing into professional brands, which is expected to achieve strong collaboration between categories. Globalization is an important long-term strategy for the company. The company is the number one exporter of software and home appliances, and since it emphasized improving the quality of integrated operations, it has gradually achieved profit improvements and is expected to continue; the company is exploring overseas independent brand business, cross-border e-commerce, and offline store expansion. We expect the company to focus on advantages and accelerate industry integration with Yingfeng's empowerment.
Domestic sales go hand in hand: software innovation and development, large households continue to iterate software: based on sofas, power mattresses, and break the game. 1) Sofas: Multiple categories & wide price bands increase share with product & channel advantages. The company's domestic sofa sales revenue in 2023 is estimated to exceed 4 billion yuan, and its performance is relatively steady. In terms of share, the Chinese and US CR2 are 12%/27% respectively, and there is still room for improvement in the customer's share. The company's brand matrix covers a variety of models and price ranges. Among them, functional sofas have achieved good growth by optimizing product strength under industry penetration dividends. The current share is estimated to have exceeded 15%; the sinking series is rapidly expanding.
2) Mattresses: Broaden the price range and grow rapidly with channel advantages. The company's domestic bed sales revenue in 2023 is estimated to exceed 3 billion yuan, ranking in the top three in the industry. Its competitive advantage is that it can take advantage of the sofa's mature channel system and brand potential. Judging from the room for growth, there is still room for improvement in the current share and number of stores compared to leading domestic and foreign brands; moreover, the customer base has also been broadened.
Large household: break through customization and move towards the whole family. Customization is the company's strategic layout for larger households. It aims to grasp traffic entrances more proactively and strengthen category collaboration. The advantage of Gujia Customization lies in the Gujia brand and product strength designed in an integrated manner with software. After years of development, it has formed a certain scale, and the company's customized revenue in 2023 is 800 million yuan. In recent years, the company's customized product price system has achieved rivalry with customized leaders (such as 39800 packages, 698 packages, etc.), enhanced the strategic positioning of the entire channel at the channel level, and gradually introduced external customization industry talents to enhance customized service capabilities. From a growth perspective, the number of Gu Jia's custom stores is several hundred, with a single store pickup amount exceeding 1.1 million yuan. The number of stores and single store pickup value are both about 2-3 times more room for improvement compared to standard custom stores, respectively.
In 2023, the company's customized gross margin was 27.5%. Compared with leading customized companies, there is still a lot of room for improvement. Referring to the historical development stage of leading customized companies, Gujia Custom is of course still in a period of economies of scale, and subsequent profit improvements can be expected.
Retail transformation: continuous retail transformation, demand efficiency for the entire system
At the channel level, category linkage and fine operation have achieved remarkable results. 1) After the reform of regional retail centers, the proportion of integrated stores and large stores increased, and the three high-potential categories of mattresses, custom-made, and functional sofas grew rapidly; 2) Multiple channels promoted deep customer traffic to strengthen online and complete business development; 3) The retail distribution system and product operation system achieved 100% coverage and in-depth application of stores. At the supply chain level, digitalization and warehousing service construction have continued to be promoted to improve efficiency. In 2023, the retail coverage rate of 38 regional warehouses reached 31.2%, boosting retail delivery accuracy by 17 pcts, and shortening inventory turnover by 14 days.
Globalization: Localized operation & capacity expansion, brand development in progress
Improving the quality of export sales & improving profits is the company's key direction, and the brand business is explored through multiple models of stores and cross-border e-commerce. The company's gross export margin rose 4.7 pcts to 25.5% in 2023. As the company continues to promote integrated operations, emphasizing operational efficiency and quality. Through optimization at the level of capital efficiency, raw materials, and personnel structure, it is expected that the improvement in endogenous profit will continue, and there is still room for current highs compared to the previous period. Meanwhile, production capacity layouts in Vietnam and Mexico are strengthening global competitiveness, and mattresses are being transferred to US factories to deal with anti-dumping. The company's net profit from 2024-2025 is estimated to be 22.5/2.60 billion yuan, corresponding to PE 14/12x, maintaining a “buy” rating.
Risk warning
1. Real estate sales and completion fell short of expectations; 2. The company's channel expansion and operation fell short of expectations.