Incident: The company released its 2024 semi-annual report. 2024H1 achieved revenue of 3.72 billion yuan, +41% YoY, net profit 0.17 billion yuan YoY, -8% YoY net profit, 0.16 billion yuan, -25% YoY; of these, Q2 single quarter revenue was 1.88 billion yuan, +37% YoY, net profit to mother 0.07 billion yuan, -28% YoY, net profit not attributable to mother.

Revenue has maintained rapid growth, and profits have been pressured in the short term, mainly due to: ① the strategy of increasing market share, a year-on-year decline in product ASP, and an increase in marketing expenses for new product promotion; ② due to the Red Sea incident, the year-on-year increase in shipping costs and storage expenses associated with business development; ③ exchange gains and losses after hedging changed from 17.726 million yuan of 23H1 to a loss of 6.5968 million yuan in 24H1; ④ Equity incentive share payment fees of 7.2477 million yuan.

By category, the revenue of the 2024H1 furniture series was 1.9 billion yuan, +39% year over year, gross profit margin of 34.68%, -1.65pct year; household series revenue was 1.33 billion yuan, +50% year on year, gross profit margin 35.94%, and -2.06 pct year on year. The company increased its efforts to launch new products, and the revenue contributed by new products increased year-on-year. Furthermore, the sub-new products launched in 2023 performed strongly at 24H1, and sales grew rapidly, which is the core driving revenue growth.

By region, 2024H1 Europe's revenue was 2.28 billion yuan, +41% year over year, gross profit margin was 36.12%, and -3.66 pct year over year. Revenue growth was mainly due to traditional competitive advantages and expansion of platforms such as OTTO and Shein; revenue in North America was 1.34 billion yuan, +41% year over year, continuously improving sales capacity and profitability by reducing costs, optimizing local fulfillment networks, and increasing market share, and gross margin increased by 1.98 pct to 33.15%.

In terms of self-operated warehouses, as of the end of June 2024, the company's overseas self-operated warehouse area had exceeded 0.35 million square meters. In Europe, the distribution pressure of central warehouses in Germany was distributed directly to all of Europe, and three-party front warehouses were set up. As the share of front warehouses increased, front-end warehouse rental costs were reduced through volume exchange. Guaranteeing spontaneous prices on the European route has an obvious market advantage, further improving the delivery time of last-end contracts in the European region. The US region completed the five-warehouse layout. The proportion of spontaneous orders in the US market increased from 8.5% in January 2024 to 15.7% in June. At the same time, final costs were further reduced, Amazon Shipping was used, and the cost structure of US Line products was optimized.

Profit prediction and rating: We are optimistic about the company as a leader in cross-border e-commerce for home furnishings. The product matrix is scenario-based and serialized expansion to promote consumer-related purchases. The gradual improvement of its own warehouses is expected to bring about last-end freight optimization, and the effects of reducing costs and increasing efficiency in the supply chain will gradually be reflected, and the development of new markets and new channels will contribute more. The net profit for 2024-2026 is 0.427 billion yuan, 0.57 billion yuan, and 0.722 billion yuan, respectively. The corresponding PE is 16x/12x/9x, maintaining the “recommended” rating.

Risk warning: Demand for overseas terminals falls short of expectations; fluctuating raw material prices; fluctuating international shipping rates; fluctuating exchange rates; intensifying industry competition, etc.