The company released its 2024 mid-year report, and the 24Q2 performance was in line with expectations. 24H1 achieved revenue of 1.388 billion yuan, a year-on-year increase of 1.7%, and realized net profit of 0.053 billion yuan, a year-on-year increase of 43.5%, deducted non-net profit of 0.05 billion yuan, an increase of 106.7%; 24Q2 achieved revenue of 0.863 billion yuan in a single quarter, an increase of 4.1% year-on-year, and realized net profit of 0.041 billion yuan, a year-on-year increase of 41.4%. 81.2%

The company continues to promote the development of the pan-home furnishing business, acquires the Foshan Southern Architectural Design Institute, and expands the industrial ecosystem through resource integration.

In the first half of 2024, it acquired Foshan Southern Architectural Design Institute to reinforce architectural design and interior decoration design capabilities in the public decoration industry, promote a closed loop in the prefabricated assembly industry chain, and provide cost-effective one-stop healthy and environmentally friendly space solutions. The company forms a comprehensive industrial ecosystem where various business sectors collaborate by building industrial chain advantages in back-office material R&D and manufacturing, a China-Taiwan supply chain system, and front-office brand channels.

Yingpai Ceramics gave full play to the asset-light operating model to improve cost control and supply chain efficiency. Profit margins and turnover rates continued to increase. The net profit margin of the four 24H1 companies was 5.5%, +0.5pct year on year, and the company's inventory turnover increased 0.2 to 2.3 year on year, achieving contrarian growth in a competitive industry environment. Improve the layout of central warehouses, accelerate channel sinking and nationwide market expansion, improve terminal channel radiation capacity through the central warehouse model, further cover county administrative districts, and further cultivate sinking market demand. Accelerate the expansion of the national market.

Improve the prefabricated assembly industry chain and expand the second growth curve. The company integrates resources from various business sectors around the pan-home furnishing industry chain to form differentiated competitiveness and forms a four-dimensional driving model with Southern Design Institute as the architectural design unit, Tianhui Construction Technology as the construction unit, Tian'an integration as the material application unit, and Yingpai Company, Tian'an Polymer and Ruixin materials supply. I have long been optimistic that prefabricated interior decoration technology will be completed. B-end public decoration has formed a complete industrial chain, and the business has achieved a breakthrough of 0 to 1. Dry construction solves the pain points of long construction cycles and pollution. After the C-end is successful, it is expected to leverage the 100 billion dollar market for stock housing renewal and renovation.

The automotive interior business has benefited from the increased penetration rate of new energy vehicles and continued to consolidate competitiveness and achieve steady growth. 24H1 automotive interior revenue increased 12% year over year. The company grasps the trend of increasing penetration rate of new energy vehicles, continuously improves supply quality and efficiency, responds in a timely manner to the requirements of downstream customers and OEMs in terms of material quality and supply efficiency, and continues to increase its market share. With the improvement of the company's automotive interior business manufacturing management capabilities and R&D innovation capabilities, this sector has high growth certainty.

Expense rates have been significantly optimized, and profitability has improved. 24H1 gross margin was -0.4 pct to 22.0% year on year; 24Q2 gross margin was 22.4%, -0.9 pct year on year. The company adjusted its product structure and actively expanded high-value-added products, and gross margin is expected to increase. 24h1 sales/management/R&D/finance cost rates were -0.3/-0.0/ -1.1/-0.9pct to 6.4%/5.4%/3.3%/0.9%, period cost rates were -2.2pct to 16.0% yoy, 24Q2 sales/management/R&D/finance expense ratios were -1.3/-0.5/-0.6/-0.9pct to 5.7%/4.6%/3.5%/0.5%, respectively.

The net profit margin for 24H1 was +1.1 pct to 3.8% year on year, and the net profit margin for 24Q2 was 4.8%, +1.3 pct year on year. Interest rates on the company's interest-bearing liabilities have declined, financial expense ratios have been reduced, some R&D projects have been completed, and R&D expense ratios have declined, leading to improvements in profitability.

After the merger and acquisition of Yingpai Ceramics, the bottom was reversed. In the short to medium term, the market-based reform led to an increase in profit margins. Outsourced OEM and central warehouse models brought about countertrend growth in the industry during the long-term downturn. In the long term, they were optimistic about prefabricated interior decoration. Dry construction solved the pain points of long construction cycles and major pollution, and the increase in B-side and C-side penetration opened up room for growth. Maintain the 2024-2026 net profit of 0.152/0.213/0.285 billion yuan, +25.8%/+39.9%/+33.7%, respectively. The corresponding PE is 12X/9X/6X, maintaining the “buy” rating!

Risk warning: weak demand in the home furnishing market, risk of business collaboration.