A leading hometextile brand with steady operation, a high-end home textile brand with high profit and dividend levels, maintaining high profit and dividend levels for many years. Fuana is based on “Artist Textiles” and positions itself as a high-end home textile brand. It owns four original home textile brands: the core main brand “Fuana”, and the three sub-brands “VERSAI Visa”, “Citadines”, and “Cool”. In the downward real estate and wedding cycle, the company is in a steady growth stage. Revenue and performance have fluctuated less than peers in recent years. As a family enterprise, the company has a stable shareholding structure. The team executives are basically family members who have been deeply involved in the industry for many years. Many times in history, equity incentives have been sufficient and highly realized. The company has maintained a high profit level for many years, and the dividend rate has basically remained above 80%.
Industry demand upgrade, online and offline pattern optimization
The market size is stable, and the frequency of demand upgrades & replacements is increasing. In recent years, the market size of the home textile industry is basically between 320-340 billion yuan, and the bedding market size is 2300-250 billion yuan. The overall fluctuation is small. However, in recent years, due to the increase in time spent at home, driving the upgrading of consumer demand for home textiles, the frequency of home textile replacement has increased while the share of consumption of high unit price and quality products has increased markedly. Currently, demand for real estate and weddings is weakening, and the replacement is the number one demand in the home textile industry. Demand upgrades are increasing in frequency and proportion of high-quality products.
The industry pattern is scattered, and the industry pattern is being clarified at an accelerated pace. The market share of China's home textile industry is scattered. CR5 is far lower than the 6.0% in the US and 16.7% in Japan. However, the offline pattern has accelerated in recent years, and the revenue elasticity and resilience of leading home textile companies are superior to the industry's growth rate.
The concentration of bedding sets and quilts has increased in offline channels, supermarkets, department stores, etc., and the overall average price of home textile products has risen. Continued losses of some Xinsanban home textile companies are also expected to gradually clear out. E-commerce channels, home textile leaders are actively laying out online business, and e-commerce white cards have also been partially cleared.
Strong direct sales ability, outstanding product style
The profit level is superior to peers, and the quality of channel management is excellent. The company is positioned as a high-end artist, textile. The founder personally controls the product design, and the R&D expenses are high. Therefore, the product has a unique style, and its high-end consumer base is relatively stable. Although the scale is weaker than Rollei Life and Mercury Home Textiles, the company's high-end differentiated product style and high proportion of direct sales channels make it have a better gross margin level. Furthermore, under the guidance of profit margin targets, the company has excellent cost control capabilities and a higher net interest rate level. Judging from the level of channel operation, in 2023, the company's direct sales & franchise channels had excellent store efficiency and performance levels. The e-commerce channel developed emerging channels such as Douyin, and the structure was diversified, and the Tmall channel return rate was lower than Rollei Life.
Looking forward to the future, as small and medium-sized home textile companies in the industry gradually clear up, the market share is expected to increase. On the one hand, the number of the company's franchise channel stores is still far lower than Rollei Life. There is plenty of room to open stores in the future, and there is still room for improvement in store efficiency. On the other hand, the company continues to optimize its product structure, and the profit level of e-commerce and other channels is expected to continue to rise. Therefore, the company is expected to achieve net profit of 6.2/6.6/70 billion yuan in 2024-2026. Currently, the corresponding PE is 15/14/13X, respectively, covered for the first time, and given a “buy” rating.
Risk warning
1. Risk of weak consumer demand;
2. Franchisee inventory pressure risk;
3. Risk of poor channel development in the company;
4. Risk that the profitability of e-commerce channels falls short of expectations;
5. Profit prediction assumptions are unfounded or fall short of expectations