About 400 million yuan to lease German overseas warehouses.

In order to consolidate the company's competitive advantage in the European fulfillment system, the company continues to increase its investment in warehousing and logistics resources. EUZIEL International GmbH, a second-tier wholly-owned subsidiary of the company, intends to lease its location in Johanniskirchstra? The E 63, 71 in 45329 Essen warehouse has a total area of 42,000 square meters. The fixed lease period is 10 years from the date of handover, at the latest before February 1, 2025.

Net rent of €355,000 per month (excluding tax, rent adjusted according to the German consumer price index determined by the German Federal Statistical Office starting from the 13th month of the rental period). The total amount of the lease contract is approximately RMB 396 million (tax included, estimated according to the Bank of China's median foreign exchange rate of 7.6555 between RMB and 7.6555 in June 2024, without taking into account price increases).

The company added a self-operated overseas warehouse area of about 123,000 square meters in 2024.

In addition to the 42,000 square meters of this lease, W? rthstr. 173,47053Duisburg warehouse area 29,000 square meters, lease period 2024/1/1-2030/12/31, total contract amount RMB 180 million; Mercatorinsel20 IN47119Duisburg warehouse area 37,000 square meters, lease period 2024/6/1-2029/5/31, total contract amount RMB 140 million; DC4 PrologisPark Ryton, Oxford Rd, Ryton-on-Dunsmore, CoventryCV8 3LF warehouse area is 15,000 square meters. The lease period is 2024/6/14-2034/10/13, with a total contract amount of 170 million yuan.

Up to now, the company has a total of more than 200,000 square meters of self-operated warehouses in Germany. The company started overseas warehouses in Europe and has a large delivery volume. In the final delivery process in Europe, the company's spontaneous prices have a very obvious market advantage.

In 2024, the company will distribute the distribution pressure directly from central warehouses in Germany through the front warehouses of warehouses, gradually increasing the proportion of deliveries from front warehouses in France, Spain, etc., and further improving the last-end contract fulfillment time in Europe.

Online home spending is significantly faster than offline.

In an inflationary environment in Europe and the US, consumers are paying more attention to the “cost performance ratio” of products, showing a certain trend of consumption downgrading. Consumers are turning to “alternative” and more cost-effective retail channels to reduce the pressure on household expenses.

Due to the characteristics of transparent product prices, variety of choices, and high cost performance from online channels, the growth rate of the online market is higher than that of offline retail. In 2023, sales of store-free retail (including e-shopping and mail order) in the US increased by 8.0% compared to 2022, far exceeding retail sales in the US by 3.2%.

According to Euromonitor International, the US online retail penetration rate rose to 27.5% in 2023, and the European online retail penetration rate increased to 15.80%. Compared with the 36.22% online retail penetration rate in China, there is still a lot of room for improvement. As far as the furniture category is concerned, the online penetration rate of large furniture is lower than that of small furniture due to its high unit price, high logistics costs, and difficulty in transportation and installation. However, with the development of online shopping habits of European and American consumers and the improvement of warehousing and logistics infrastructure in overseas markets, product categories have gradually expanded from small and medium items to large items, further enhancing market space.

The company has been deeply involved in the European and American online home retail market for more than ten years, and has accumulated certain brand influence and recognition, and has thoroughly explored product serialization, flexible supply chains, localized operation, digitalization, etc., so that the company can link the entire chain with the best cost and efficiency.

First, the product aspect is based on the concept of meeting customer needs and enhancing product value through R&D innovation; second, the supply chain has outstanding scale effects, high efficiency and excellent cost; and third, continuous improvement of brand and sales channel advantages helps the company achieve sales goals. Fourth, the company is empowered through digital management, continuously optimizes the management system, continuously improves management efficiency, and improves the incentive mechanism for talent training to achieve the company's sustainable development.

Adjust profit forecasts to maintain “buy” ratings

In 2024, the company will clarify the group's main brand SONGMICS HOME as the direction of brand standardization, achieve more concentrated and efficient traffic conversion, and further clarify the three core values of the brand, namely design, cost performance and convenience. The company will continue to increase investment in R&D, enrich the product layout, and use a unified design language to drive consumers' related purchasing intentions through serial product construction. It also uses serialized products as a benchmark, expands and perfects the product style and serialized compass, and continuously introduces new products to provide consumers with good-looking and value-for-money household products.

At the same time, the company is committed to optimizing and upgrading the product structure, standardizing and standardizing materials, processes, components and connectors in the production process, and standardizing control from product hardware application, structural design, process selection, and drawing standards, reducing the difficulty of managing multiple SKU derivatives and improving production efficiency and product quality stability. Based on the successful launch of the installation-free tool series in 2023, the company will introduce ecological partners to co-create, be guided by KD and convenient installation, and continue to iterate on the process.

We estimate that the company's net profit for 24-26 will be 50/ 61/73 billion yuan, respectively, and the corresponding PE will be 17/14/11X, respectively, maintaining a “buy” rating.

Risk warning: Global shipping rates rise, industry competition intensifies, overseas demand declines, new product iterations fall short of expectations, risk of exchange rate fluctuations, etc.