Key points of investment
Minhua Holdings issued a performance announcement:
In fiscal year 23/24 (April 23 to March 24), the company achieved operating income of HK$18.411 billion (+6.1% YoY, RMB +10.8% YoY) and net profit of HK$2.02 billion to mother (+20.2% YoY, RMB +25.5% YoY). The company's gross margin for fiscal year 23/24 was 39.4%, up 0.9 pct year on year; net interest rate was 12.5%, up 1.5 pct year on year, improving profitability.
Domestic sales: open up a sinking market and continue to open up channels
China's market revenue during the period was HK$11.987 billion (+8.1% YoY, RMB +12.8%), of which H1/H2 was +5%/+11%, respectively, and the gross profit margin was 40.4% (+0.1pct). The decline in raw materials also strengthened dealer incentives and consumer benefits. Excluding iron frame caliber, China's market revenue of HK$10.769 billion (+4.8% YoY, RMB caliber +9.5%):
(1) Offline store revenue was HK$8.149 billion, up 5.8% year on year (rmb caliber +10.5%), with a net increase of 765 stores to 7236 (H1/H2 net opening of 417 and 348 respectively). The company focused on developing stores in the sinking market and adding a cost-effective series for Tier 1 and 2 cities.
(2) Online e-commerce revenue was HK$2,621 billion, up 1.8% year on year (RMB caliber +6.3% year over year). Strengthen the live streaming sales model online, and achieve enhanced brand influence and sales growth through short video promotion, live streaming from our own stores, and in-depth cooperation with leading anchors.
Export sales: High growth under a low H2 base, lower raw material costs & shipping costs, rising gross margin (1) North American market: North American market revenue of HK$4.284 billion (+2.3% year over year, of which H1/H2 were -20.5%/+38%), gross profit margin 37.1% (+0.7 pct year over year, up 8.4 pct after excluding shipping surcharges). As the US market gradually replenished its reserves, revenue gradually resumed growth in the second half of the fiscal year, and revenue achieved positive growth throughout the year.
(2) Europe and other overseas markets: Revenue from Europe and other overseas markets was HK$1,195 billion (+2.9% year over year, of which H1/H2 was -20.6%/+35%, respectively), and gross business profit was 30.3% (+6.7pct year on year), mainly due to lower raw material costs.
By category: Domestic sales of sofas grew rapidly, continuously strengthening product competition barriers (1) Sofas & accessories achieved revenue of HK$12.659 billion (+2.93% YoY, of which H1/H2 were -7.9%/+16%, respectively), with total sales volume of 1.902 million sets (+26.6% YoY); domestic sofa revenue in RMB increased 15.7% year on year, with sales volume of 1.12 million sets (+25.7% YoY), calculated that ASP changed -7.9% year on year (rmb caliber); export sales volume of 782,000 sets (+28% YoY). The company takes R&D as the core support and continuously strengthens product competitiveness and barriers.
(2) Bedding (all domestic sales) reached HK$2,988 billion (+9.57% year over year), of which H1/H2 was -1%/+23%, respectively. Bed products were upgraded, and channel terminal display optimization continued to advance.
Financial indicators: Decline in raw material prices, increase in gross margin, decrease in cost ratio (1) Gross profit margin of 39.4% (YoY +0.9pct), mainly due to price reduction of raw materials, including steel (-8.1% YoY), leather (-10.1% YoY), chemicals (-2.8% YoY), wood plywood (-24.6% YoY), wrapping paper (-8.9% YoY), and calico (YoY -6%). (2) The total cost rate for the period was 24.29% (-1.81 pct year on year), mainly due to a significant decrease in overseas transportation & port expenses (the cost rate decreased by 1.4 pct year over year).
(3) The net interest rate was 12.5%, an increase of 1.5 pct over the previous year. If other profit and loss effects (mainly fluctuations in the fair price of bonds held) are deducted, the performance is better.
Profit forecasting and valuation
The inflection point of the company's domestic sales operations is gradually showing, and foreign trade order acceptance expectations are excellent, and continuous recommendations are made. We expect the company to achieve operating income of HK$201,028 billion (+9%), HK$22.119 billion (+10%), HK$24.442 billion (+10%); net profit to mother of HK$2,606 billion (+13%), HK$2,917 billion (+12%), and HK$3.217 billion (+10%); corresponding to the current market capitalization PE is 10.19X, 9.11X and 8.26X, maintaining a “buy” rating.
Risk warning
Real estate continues to be sluggish, and raw material prices fluctuate greatly