Description of the event

The company released its 2024 semi-annual performance forecast. It is expected that 2024H1 will achieve operating income/net profit to mother of 30.90/0.30 to 0.40/0.13~0.015 billion yuan, -10%/-82% ~ -77%/-91% ~ -90%; of these, 2024Q2 will achieve operating income/net profit attributable to mother/net profit 19.56/1.20 to 1.30/1.19~0.121 billion yuan, -16%/-28% ~ -22% /- 28% ~ -27%.

Incident comments

The industry is weak, e-commerce performance falls short of expectations, compounded by high base effects, and revenue is under pressure. On the one hand, the overall performance of e-commerce channels fell short of expectations. According to Jiuqian & Chan's mom data, 2024Q2 Wrigley Home's Tmall/Jingdong/Douyin GMV was 0.43/0.373/0.041 billion yuan, compared to -0.5%/-40%/-16%; on the other hand, since the company began implementing CIF (a logistics model with integrated price and uniform distribution of products purchased by dealers, the company uniformly arranges logistics delivery to the dealer's designated warehouse, and the company and logistics carriers settled the relevant expenses). The impact was on the release in June 2023. The apparent growth rate on the revenue side this year. At the industry level, the real estate market continued to adjust and consumer expectations weakened in the first half of this year. Increased competition in the sanitary ware industry also had an adverse impact on the company's revenue growth.

Cost reduction and efficiency increased at an accelerated pace, and gross margin improved month-on-month. Affected by falling product prices, 2024H1's gross margin decreased by 2.68 pcts year on year, but the company accelerated cost reduction and efficiency by actively promoting product line optimization, omni-channel marketing and management efficiency improvement. 2024Q2 gross margin increased 3.74 pcts month-on-month and decreased 0.82 pcts month-on-month, and the decline narrowed. Looking ahead to the second half of the year, it is expected that the company will continue to improve product planning capabilities, optimize product structure, speed up new product launches and store upgrades, accelerate channel decline and overseas exports, continue to improve omni-channel layout, and at the same time accelerate cost reduction and efficiency, and strive to improve profitability.

Smart products continue to benefit from growth, and the export business is expected to contribute to medium- to long-term growth. 1) Smart toilet business: In 2023, smart toilet revenue increased 12%, and the revenue share increased by 1.9 pcts to 20.4%. Among them, sales volume/average price were +30%/-14%, respectively, and the performance was excellent. The average price of smart toilets has declined due to factors such as the consumption environment, but it is still significantly higher than the overall price of sanitary ceramics (1431/415 yuan in 2023, respectively), and the continued increase in their share has a positive effect on the overall average price.

2) Export business: The export business of 2024Q1 is growing significantly. Currently, it is estimated that the export business is dominated by OEMs, and its own brands are still in the layout stage (dealers and general stores in the Middle East, Southeast Asia and other regions are in the process of layout). As the company continues to reduce costs and increase efficiency, the medium- to long-term export business is expected to contribute marginal growth.

I am optimistic about the company's competitiveness in the smart category and the results of refined operations in the second half of the year. Smart toilets are still a major dividend product, and the company has obvious advantages; at the same time, increasing sales space for hardware and other products around the core products of sanitary ceramics is still considerable. This year, the company will strengthen its competitive advantage in the direction of increasing customer acquisition (improving store layout), improving customer orders (upgrading the store format), omni-channel layout (diversification of e-commerce platforms+export volume), and grasping stock demand. The reduction in product-side cost-effective product prices goes hand in hand with high-end products dominating the high ground; furthermore, this year, it emphasizes a number of measures such as value chain collaboration to reduce costs and improve efficiency and strengthen management resilience. The estimated net profit for 2024/2025/2026 is 0.412/0.491/0.565 billion yuan, corresponding to PE 16/14/12X.

Risk warning

1. Real estate sales and completion fell short of expectations;

2. Competition for smart products continues to intensify;

3. The company's channel expansion fell short of expectations.