Incident Overview

The company released its 2024 mid-year report: In the first half of the year, it achieved revenue of 4.804 billion yuan, with high revenue growth, mainly due to the gradual results of the company's manufacturing Taoke+ brand overseas business plan and the increase in cross-border e-commerce sales; net profit to mother was 0.22 billion yuan, -16.17% year over year; net profit after deducting non-return mother was 0.22 billion yuan, -9.17% year over year. The net cash flow from the company's operating activities was 0.647 billion yuan, +152.19% year-on-year, a significant year-on-year increase, mainly due to increased bill payments during the reporting period. Looking at a single quarter, 2024Q2 achieved revenue of 2.451 billion yuan, +25.68%; realized net profit of 0.117 billion yuan, or -36.30% year on year; net profit of 0.117 billion yuan after deduction, the company increased new product promotion and marketing expenses, and was affected by exchange rate fluctuations and the year-on-year increase in shipping costs, and the profit side was under pressure. In terms of cash flow, the net cash flow from the company's operating activities was $0.489 billion, +153.94% over the same period last year.

Analytical judgment:

Revenue side: The manufacturing development+ brand overseas business plan showed results. Cross-border e-commerce boosted the steady increase in revenue of independent brand building companies in the first half of 2024. Thanks to the company's global brand strategy, the manufacturing business was also deeply involved in the European and American markets, and a professional marketing team was formed to promote market expansion and customer development. By product, office furniture, upholstered furniture, panel furniture, new material flooring and other main businesses achieved revenue of 1.873 billion yuan/0.665 billion/ 0.446 billion/ 0.731 billion yuan/1.081 billion yuan, respectively, +14.94%/+10.24%/+5.26%/+410.82% year-on-year. The panel furniture business declined slightly year-on-year, and the growth rate of the office furniture and upholstered furniture business was significant. Looking at the distribution model, manufacturing business (OEM/ODM) revenue in the first half of 2024 was 2.461 billion yuan, +10.62% year-on-year; OBM business revenue accounted for 48.61% of total revenue. The traditional OEM and ODM business is recovering steadily, while the OBM business is growing rapidly with the strength of the company's own brand.

The international e-commerce furniture market continues to expand. According to Statista data, the global furniture e-commerce market reached 236 billion US dollars in 2023. Henglin continues to increase investment in cross-border e-commerce business, build a global supply chain management system, and set up a 0.35 million square meter warehousing and distribution center. Cross-border e-commerce sales channels cover mainstream third-party online e-commerce platforms at home and abroad, such as Amazon, Walmart, TEMU, and TikTok. It has cross-border e-commerce brands such as Sweet Furniture and Colamy, and also lays out social media such as Facebook and Instagram to create a multi-dimensional online marketing network. In the first half of 2024, cross-border e-commerce revenue reached 1.686 billion yuan, +240.89% year-on-year. It is expected that as supply chain advantages and full-platform layout advantages gradually emerge, the company's cross-border e-commerce business is expected to continue to grow rapidly in the future.

Profit side: Profitability declined year on year. The cost ratio slightly increased profitability during the period. The company's gross profit margin and net interest rate for the first half of 2024 were 21.16%/5.02%, respectively, and -2.55pct/-2.47pct, respectively. Among them, the gross profit margin and net interest rate for the Q2 single quarter were 17.66%/5.19%, and -5.03pct/-4.57pct, respectively. Profitability declined. It is expected to be mainly due to increased sales expenses of new products and impairment of goodwill calculated by individual acquired companies. In terms of expenses, the company's expense ratio for the first half of the year was 15.54%, +0.64pct; of these, the sales expense ratio was 8.94%, +0.76pct; the management expense ratio was 4.13%, -1.2pct; the financial expense ratio was 0.35%, +1.85pct; and the R&D expense ratio decreased 0.75pct to 2.13% year over year. The increase in the financial expense ratio is quite obvious, mainly affected by the decline in exchange earnings after the share of cross-border e-commerce business increased. In order to mitigate the impact of exchange rate fluctuations on performance, the company has announced the launch of foreign exchange derivatives business.

Investment advice

The company seizes the rise of new cross-border e-commerce platforms, and the OBM business is growing rapidly. We are optimistic that it will quickly seize the market with its first-mover advantage on platforms such as TEMU and TikTok. We raised our 2024 revenue forecast and estimated revenue of 10.789 billion yuan (previous value 9.021 billion yuan). The company's revenue for 2025-2026 is 12.848/15.317 billion yuan, respectively. Due to pressure on shipping costs and the high upfront operating costs of cross-border e-commerce, the upfront operating costs of cross-border e-commerce will be reduced by 2024 The annual EPS is estimated to be 3.64 yuan (previous value 6.30 yuan), and the 2025-2026 EPS is 4.60/5.81 yuan respectively, corresponding to the closing price of 32.01 yuan/share on August 22, 2024. PE is 9/7/6 times, respectively, maintaining the “buy” rating.

Risk warning

1) Exchange rate fluctuation risk; 2) International trade friction risk; 3) Raw material price fluctuation risk; 4) Real estate industry growth rate falls short of expectations