Incident Overview: The company released its 24-year report. 2024H1's revenue/net profit/net profit deducted from non-net profit/operating cash flow was 48.04/0.22/0.22/0.647 billion yuan, up 31.86%/-16.17%/-9.17%/+152.19%; 2024Q2 company revenue/net profit/net profit deducted non-net profit was 2.451/0.117/0.117 billion yuan, respectively, up 25.68%/-36.30%/-29.23 billion yuan %. The revenue increase in the first half of the year was mainly due to the gradual results of the company's manufacturing development plan, contributing to the increase in cross-border e-commerce sales; the decline in profits was affected by large investment in new product promotion and marketing, the year-on-year increase in shipping costs and share payment fees, and the company had some fixed asset disposal benefits and exchange earnings during the same period last year. Operating cash flow is high and higher than net profit attributable to mother is mainly due to increased bill payments in the current period.

Cross-border e-commerce accelerates the overseas expansion of independent brands and promotes the transformation of enterprises from “manufacturing” to “manufacturing+service”. 24H1's manufacturing business (ODM/OEM) revenue also increased 10.62% to 2.461 billion yuan. In recent years, the company has increased OBM business on top of OEM/ODM business, and 24H1's OBM business accounts for 48.61% of total revenue. 24H1 cross-border e-commerce also increased by 240.89% to 1.686 billion yuan, an increase of 1.192 billion yuan over the previous year. Currently, the company has cross-border e-commerce brands such as Sweet Funiture and Colamy, and its products cover ergonomic chairs, lift tables, storage cabinets, functional sofas, etc. The company's 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 also lays out social media such as Facebook and Instagram to create a multi-dimensional online marketing network, which has become the company's second growth curve. The company has set up warehousing and distribution centers with a total area of 0.35 million square meters in five major regions, including New Jersey, USA, to improve terminal sales and delivery timelines and reduce cross-border logistics and transportation costs. View by product. The revenue of 24H1's office furniture/upholstered furniture/panel furniture/new material flooring/other main business increased by 14.9%/18.5%/-10.2%/5.3%/410.8%, respectively. The above businesses accounted for 39.0%/13.9%/9.3%/15.3%/22.5% of the main business revenue respectively.

Q2 Gross margin declined due to rising shipping, etc., a decrease in net margin, a decrease in gross margin, and an increase in financial expenses. 24H1's gross profit margin was 21.16%, down 2.55pct year on year; net profit margin was 5.02%, down 2.47pct year on year.

From the cost side, 24H1's sales/management/ R&D/finance expenses ratio was 8.94%/4.12%/2.13%/0.35%, respectively, up 0.76/-1.20/-0.76/1.85pct over the previous year. The increase in sales expenses was due to an increase in sales and promotion expenses. The large increase in financial expenses was mainly due to a decrease in exchange earnings for the current period. 24H1's exchange revenue was 26.4811 million yuan, and the exchange income for the same period last year was 98.4655 million yuan. Looking at a single quarter, 24Q2's gross profit margin was 17.66%, down 5.02 pcts year on year; net profit margin was 5.19%, down 4.57 pct year on year. On the cost side, 24Q2's sales/management/ R&D/ finance expenses ratio was 4.66%/4.62%/2.27%/0.15%, respectively, down 2.20/0.92/0.68/ -4.83pct year on year.

Leasing overseas warehouses strengthens competitiveness and helps develop one's own cross-border business. On August 15, the company issued the “Notice on Leasing Overseas Warehouses”. In order to better promote the development of the company's cross-border business, the company's holding subsidiary EfulFill, Inc. plans to lease a warehouse located in Linden, New Jersey, USA, with a lease area of 0.25 million square feet (about 23,225 million square meters) and a lease amount of 17.3135 million US dollars (tax included) (equivalent to about RMB 123.719 million). The security deposit is 1.275 million US dollars (equivalent to about RMB 9.111 million), and the lease period is 53 months. Over the past 12 months, the company has leased 7 overseas warehouses (excluding this lease), with a total area of about 2.8 million square feet (about 0.26 million square meters), and the total rent amount is 169.1377 million US dollars (tax included) (equivalent to about RMB 1.209 billion). The rental period for each overseas warehouse ranged from October 1, 2023 to April 30, 2032. The company is expected to continue to enhance its competitiveness in the cross-border business market through the layout of overseas warehouses.

Profit forecasting and investment advice. We expect the company's 24-26 revenue to be 10.48/12.6/15.12 billion yuan, respectively, and the 24-26 EPS will be 3.56/4.40/5.27 yuan/share, respectively. Referring to the closing price of 30.43 yuan/share on August 23, 2024, the corresponding PE will be 9 times, 7 times, and 6 times, respectively, maintaining a “buy” rating.

Risk warning: Risk of declining overseas demand, risk of international trade friction, risk of fluctuations in raw material prices, risk of fluctuations in RMB exchange rates and changes in export tax rebate policies, risk of concentration of major customers, risk of developing new categories falling short of expectations, cross-border e-commerce business development falling short of expectations.