1H24 results are in line with our expectations

The company announced 1H24 results: 1H24 achieved revenue of 3.721 billion yuan, a year-on-year increase of 40.74%, a year-on-year increase of 0.172 billion yuan, a year-on-year decrease of 7.73%, after deducting non-return net profit of 0.16 billion yuan, a year-on-year decline of 24.97%, mainly affected by rising shipping and marketing expenses, and payment of equity incentives.

The results were in line with our expectations.

On a quarterly basis, the company achieved revenue of 1.842/1.879 billion yuan in 1Q/2Q24 respectively, +45.3%/+36.55% year-on-year, and net profit of 0.101/0.071 billion yuan, respectively, and +15.06%/-27.94% year-on-year respectively.

Development trends

1. New product launches help the entire product line grow, and performance continues to improve. Looking at 1H24 by product, 1) furniture: revenue of 1.896 billion yuan, gross margin decreased by 1.65ppt to 34.68%; 2) household: revenue of 1.335 billion yuan, up 50.2%, gross margin decreased by 2.06ppt to 35.94%; 3) pets: revenue of 0.309 billion yuan, up 37.3% year on year; 4) sports and outdoor: revenue of 0.133 billion yuan, up 3.4% year on year. We believe that the company's performance is expected to continue to grow as new products are launched and brand power continues to expand.

2. The gross margin declined slightly, and the cost ratio increased. The company's 1H24 gross margin was 34.92%, -1.47ppt year over year. On the cost side, the company's expense ratio for the 1H24 period was 29.99%, +3.54ppt. Among them, sales/management+R&D/finance expenses rates were 24.67%/4.51%/0.82%, respectively, +1.82pp/-0.77pp/ +2.5ppt. Sales expenses have increased due to the promotion of new products, and financial expenses have risen due to the influence of exchange. Under the combined influence, 1H24 net margin was 4.61%, -2.42ppt year over year.

3. The European and American markets are growing strongly, and business channels continue to expand. 1H24 achieved: 1) Europe: revenue of 2.279 billion yuan, an increase of 41.2%; gross margin decreased by 3.66ppt to 36.12%, mainly benefiting from the expansion of traditional advantage platforms and platforms such as OTTO and Shein; 2) North America: Revenue of 1.341 billion yuan, an increase of 41.1%; gross margin increased 1.98ppt to 33.15%. According to the company's semi-annual report, the company actively developed new platforms such as Temu, Target, and TikTok Shop, and added 3 new tripartite cooperative warehouses. By optimizing last-haul transportation strategies, increasing spontaneity, and optimizing the shipping mix, we expect to continue to drive the company's performance growth in the future; 3) Japan: revenue of 0.03 billion yuan, an increase of 30.6%; 4) Others: Revenue of 0.022 billion yuan, an increase of 39.4%. We believe that as the main channels continue to operate steadily and emerging platforms continue to expand, the company's overseas markets are expected to continue to grow rapidly.

Profit forecasting and valuation

The profit forecast for 2024/2025 remains unchanged, corresponding to a price-earnings ratio of 15/13 times 2024/2025. Maintain an outperforming industry rating. Considering the declining risk appetite in the market, we lowered our target price by 17% to 25 yuan, corresponding to the 2024/2025 price-earnings ratio of 20/17 times, corresponding to 34% upward space.

risks

The risk of exchange rate fluctuations, the risk of shipping price fluctuations, and market competition exacerbate the risk.