The share of demand for renovation of existing housing has increased, and the demand for consumer housing has increased. From 2013 to 2023, the per capita living expenditure of Chinese residents increased from 2,999 yuan to 6,095 yuan. During this period, the CAGR was 7.35%, and housing consumption continued to upgrade. According to iResearch, in recent years, the national decoration market has accounted for more than half of the demand for home renovation in stock according to the number of units. Demand for home renovation stocks brought about by the recovery of second-hand housing transactions and the renovation of old neighborhoods is expected to boost demand for furniture purchases, thus further driving the growth in demand for woodworking machinery and equipment.
Furniture companies' prices are internal, and the domestic production rate of equipment is expected to increase further. According to our statistics on the operating data of 8 listed companies, most of the unit prices of wardrobe and cabinet products in the sample companies fell in 2023. The median decline was around 3%, and the per capita output value of each company showed an upward trend. Under the demand of enterprises to reduce costs, the production automation rate is expected to increase. Among them, the share of domestic equipment with a strong cost performance ratio is expected to increase further.
Furniture and woodworking machinery go overseas, and the equipment benefits both directly and indirectly. The export boom in downstream furniture increased in 24 years, expanding new regional markets, and increasing demand for equipment. According to Wind, from January to May '24, furniture exports totaled US$29.9 billion, an increase of 16.6% over the previous year. The opening of a new demand market is expected to drive furniture companies to expand production and increase demand for equipment. Furthermore, while the rate of localization of furniture equipment is gradually increasing, it is also going overseas. In recent years, the overseas revenue scale of leading domestic woodworking machinery companies has been rapidly expanding.
Profit forecast and investment suggestions: Hongya CNC products continue to be upgraded and iterated, and are gradually becoming global. Production capacity is also being expanded to provide development support. The Guangzhou edge banding machine manufacturing base and the Foshan CNC equipment manufacturing base have already begun production. We expect the company's net profit to be RMB 7.16/865/10.46 billion for 24-26 years, respectively. The company was given a PE valuation of 15 times the net profit due to mother in 24 years, corresponding to a reasonable value of 25.30 yuan/share, maintaining a “buy” rating.
Risk warning: Risk of technology research and development falling short of expectations; risk of falling gross margin due to intense competition in the industry; risk of insufficient production capacity release.