Incidents:
The company released its 2024 semi-annual report. 2024H1 achieved revenue/net profit of 8.91/0.9 billion yuan, respectively, +0.3%/-3.0% year-on-year; 2Q2024 realized revenue/net profit to mother of 4.56/0.48 billion yuan, respectively, -7.4%/-9.1%.
Comment:
The foreign trade business performed well, and the customized business continued to grow under the overall strategy: 2024H1, by category, sofas/bedroom products/integrated products/custom furniture achieved revenue of 49.4/1.53/1.27/0.49 billion yuan respectively, +14.2%/-19.9%/-17.4%/+24.9%, respectively. Under the iterative optimization of products and store formats and changes in the overall enabling system, the company's customized business revenue maintained a relatively rapid growth rate, and integrated packages accounted for more than 35% of sales in large stores.
By region, 2024H1 achieved revenue of 4.72/3.89 billion yuan in domestic/export sales, respectively, -9.8%/+12.6% compared with the same period last year.
In terms of domestic trade, revenue has declined due to poor domestic real estate; in foreign trade, by promoting business development with strategic customers in supermarkets, the company has seized a large number of superior category orders, focused on functional sofa categories, vigorously attacked the American transition style, and seized development opportunities for functional single chairs, and foreign trade revenue grew rapidly.
The company firmly adheres to the “1+N+X” channel strategy, accelerates the integration of large store layouts, and continues to promote the development of all categories of households. We estimate that the number of large stores in the company will continue to increase by about 10 at the end of 2024Q2 compared to the end of 2024Q1, and the number of integrated stores will increase by about 74.
Raw material costs declined and the customization business gradually started, and the company's gross margin increased year on year: 2024H1, the company's gross margin was 33.0%, +1.5pcts year on year; net profit margin to mother was 10.1%, -0.3 pcts year on year. By product, the gross margins of sofa/bedroom products/integrated products/custom furniture were 35.1%/40.5%/30.6%/35.1%, respectively, +1.4/ +5.2/+3.0/ +6.9pcts; by region, domestic/export gross margins were 37.8%/26.0%, respectively, +1.3/+2.9pcts, respectively. According to wind data, the average price of mainstream tonnes in the 1Q/2Q2024 domestic soft foam polyether market was 8984/8977 yuan, respectively, -959/-811 yuan year on year. We believe that the main reason for the increase in the company's gross margin is the reduction in raw material costs, the scale effect after customization, and the continuous promotion of cost reduction and efficiency measures.
1H2024, the company's period expense ratio was 21.3%, +2.1 pcts year-on-year. By project, the sales/management/R&D/finance expense ratios were 17.0%/2.4%/2.0%/-0.2%, respectively, +0.9/+0.2/+0.6/+0.3 pcts compared to the same period.
Among them, the increase in the sales expense ratio was mainly due to an increase in sales staff remuneration and an increase in storage leases and related service fees. The reason for the increase in the financial expense ratio was a 49.2% year-on-year decrease in interest income and a 48.8% year-on-year decrease in exchange income. 1H2024 generated an exchange income of 0.033 billion yuan.
2Q2024, the company's gross margin was 33.0%, +2.0pcts year on year; net profit margin to mother was 10.4%, -0.2 pcts year over year.
The company's cost rate for the period was 20.6%, +3.2pcts; by project, sales/management/R&D/finance expenses rates were 16.6%/1.5%/2.6%/-0.1%, respectively, +1.2/-0.9/+1.4/ +1.6pcts year-on-year, respectively.
The “trade-in” policy has been implemented one after another, and the company is actively implementing the business model: since the Ministry of Commerce introduced the “Action Plan to Promote the Trade-In of Consumer Goods”, several provinces have successively issued implementation plans and operating rules. Among them, promoting the exchange of consumer goods in home improvement is one of the key tasks of the local plans. Trade-in has opened up new ways for home furnishing companies to acquire customers and create new growth points. Leading companies are expected to seize the market first with their scale and brand advantages. The company has now passed the “trade-in” business model and received CCTV CCTV1 attention and coverage in May, boosting a new wave of home replacement.
Leading soft home furnishing companies maintain a “buy” rating: Considering that domestic real estate sales are lower than expected and market competition exceeds expectations, we lowered the company's 2024-2026 revenue forecast to 19.38/21/22.72 billion yuan (9.5%/12.2%/15.1%, respectively), and lowered the 2024-2026 net profit forecast to the mother to 2.06/2.22/2.47 billion yuan, respectively (the reductions were 6.8%/9.3%/9.0%, respectively), 2024 -In 2026, the corresponding EPS was 2.51/2.70/3.01 yuan, respectively, and the current stock price corresponding PE was 10/9/8 times, respectively. The company is a leading soft home appliance company, actively exploring and breaking through innovative business models, and is expected to continue to increase its market share in the future. Currently, the company's valuation level is at the bottom of history, maintaining a “buy” rating.
Risk warning: US/China real estate sales fell short of expectations, product sales fell short of expectations, and market competition exceeded expectations.