Incidents:

The company published its 2024 mid-year report. 2024H1 achieved revenue of 1.45 billion yuan +4% year over year, and net profit to mother of 0.22 billion yuan +84% year over year.

Comment:

Overseas revenue achieved relatively rapid growth. 2024H1, by product, the company's kitchen and bathroom business achieved revenue of 1.27 billion yuan +6%, the beauty and health business achieved revenue of 0.14 billion yuan -0.4%, and other businesses achieved revenue of 0.04 billion yuan. By region, overseas revenue of 1.06 billion yuan was +16%, and domestic revenue of 0.38 billion yuan was -19%. In 2024Q2, the company achieved revenue of 0.77 billion yuan and net profit of 0.11 billion yuan to mother +43% year-on-year, which was basically the same.

2024H1 net margin increased significantly. 2024H1 achieved a 35.3% year-on-year increase in gross profit margin of 1.0pct, and a net profit margin of 15.3% year-on-year increase of 5.5pct. In terms of the cost rate for the period, 2024H1's sales expense ratio of 2.9% fell 1.6 pct year on year, mainly benefiting from the impact of the disposal of Songlin Furniture Company in September 2023; the financial expense ratio -1.1% fell 0.4 pct year on year, mainly due to the higher spot settlement exchange rate for foreign currency funds in the current period, which increased exchange income year on year, and the disposal of Songlin Home Furnishing Company in September 2023 reduced interest expenses year over year. In addition, the company achieved investment income of 7.45 million yuan in 2024H1, accounting for 0.5% of revenue (-0.6% in the same period last year), mainly due to the decline in RMB depreciation this year compared to the same period last year, and the year-on-year increase in investment income from structured deposits in the current period.

The high dividend policy continues, and medium-term dividends are proposed. The company's 2023 cash dividend was 0.18 billion yuan, with a dividend payment rate of 50.3%; in August 2024, the company announced plans to pay a cash dividend of 0.27 yuan per share, for a total of 0.11 billion yuan, accounting for 49.8% of 2024H1's net profit.

Restrictive stock incentive programs unleash growth momentum. The company implemented restricted stock incentives in January 2024 and granted 8.355 million restricted shares. The performance conditions for lifting the sales restrictions are: based on net profit in 2022, the net profit growth rate from 2024 to 2026 should not be less than 80%/120%/160%. Excluding base adjustments, it is estimated that net profit of 0.513/0.627/0.741 billion yuan will be required from 2024 to 2026.

Maintain an “Overweight” rating. According to the fine-tuned profit forecast in the company's interim report, revenue from 2024 to 2026 is expected to be 3.6/4.3/4.8 billion yuan, +21%/18%/14% year over year, and net profit to mother is 0.48/0.59/0.66 billion yuan (the value before the 2024/2025 forecast was 0.47/0.56 billion yuan, increasing the 2026 forecast), +35%/25%/12%, corresponding PE is 14/11/10 times.

Risk warning: risk of macroeconomic fluctuations, risk of exchange rate fluctuations, company performance falling short of expectations