Key points of investment

Gujia Home Furnishing Announces Plans to Increase Executive Holdings

In order to promote the company's action plan to “improve quality, increase efficiency and return”, based on confidence in the company's future development prospects and recognition of the company's value, the company's president, Mr. Li Donglai, plans to increase his holdings by 1.5 to 0.22 billion yuan. The corresponding shares are 0.79% to 1.15% (Mr. Li Donglai's direct and indirect total shareholding 2.36% as of the announcement date). The method of increasing holdings is centralized bidding in the secondary market, and the increase period is within 3 months.

Domestic sales: 816 major marketing activities are making great profits, and we look forward to trading in exchange for new volume

Since the beginning of '24, Gujia has continued to increase marketing efforts on the domestic trade side:

1) In March, the “Gujia Home Furnishing and Welfare Renovation Project” was launched, with excellent prices, such as 698 yuan/㎡ wardrobe and cabinet, 13,999 yuan for a two-bedroom package, and a 12,999 yuan two-bedroom package.

2) On May 10, the Huimin Renovation Project was upgraded and released. On the basis of continuing the original policy, a customized series of 998 yuan/㎡ solid wood multi-layer board products was launched.

3) Major 816 marketing campaign: The campaign period is 7.13-8.18. Currently, two weeks have started, and three new policy benefits have been released, “full year warranty”, “90 day no reason to return or exchange”, and “7-day lightning delivery for some products”. This is the result of the company's domestic trade promoting warehouse distribution and retail operation reforms over the years. The company's warehouse service coverage rate exceeded 30% in 2023, which significantly improved turnover capacity. We are optimistic that coverage will continue to increase in 2024.

The two departments “support trade-in of consumer goods”, which are expected to drive an increase in demand for replacement:

On July 25, the two departments issued “Certain Measures to Strengthen Support for Large-scale Equipment Upgrades and Consumer Goods Trade-in”, which clearly states that the funding source is “coordinating the arrangement of ultra-long-term special treasury bond funds of about 300 billion yuan”. Among them, Article 7 mentions focusing on supporting “the purchase of items and materials used for partial renovation of old houses, kitchen and bathroom, etc., and home aging adaptation to promote smart home consumption.” Article 9 of the measures mentions that the trade-in subsidy for eligible household appliances can reach 15-20% of the selling price. For reference, this is quite strong.

Insufficient spending power is currently an important factor limiting household demand. This round of measures has clear funding sources. If consumers can be given big discounts, it is expected to support the steady rise in the H2 terminal boom.

Export sales: lean manufacturing, overseas capacity expansion, no need to worry

The market's core concern about Gujia Home Furnishing's foreign trade is the uncertainty of imposing tariffs, but we believe that along with the company's overseas production capacity expansion and diversification of business development, the impact is limited:

1) Vietnam base: In 2023, a Vietnamese factory value chain management and control mechanism was established, and Vietnam's profits doubled. If domestic factories are subject to tariffs again, we believe that the Vietnamese base has a good basis for expanding production.

2) Mexico base: From the start of construction in June '22 to the annual report, the progress of the project reached 66%. We expect to further expand production in '24. The planned annual revenue is 3.019 billion yuan. At that time, we can accept more export orders to the US while improving response and delivery speed.

3) Diversified business: SPO business supply chain improvements, expanding the customer range of customers in the 3-week fast delivery model; OEM customer Costco achieved a breakthrough in new categories of partners (increasing offline chair and bed cooperation); while its own brand is going overseas, it has built two KUKA HOME benchmark stores (1000 ㎡ +) for the first time in India.

Profit forecasting and valuation

With an integrated two-wing dual-core strategy, domestic trade continues to be optimistic that a number of welfare measures will drive operational improvements, functional sofas & custom & beds have high potential, advance the layout of overseas production capacity in foreign trade, and reduce operating risks. We expect to achieve revenue of 20.453/22.509/24.668 billion in 24/25/26, +6.46%/+10.05%/+9.59% YoY, net profit 2.094/2.285/2.484 billion, +4.4%/+9.12%/+8.71% YoY. The PE corresponding to the current market value is 9.1/8.34/7.67X, maintaining a buying rating.

Risk warning

Risk of fluctuations in consumer demand; increased competition in the industry; progress in promoting the big-store model falls short of expectations, etc.