Incident: The company released its mid-year report. In the first half of '24, the company achieved revenue of 4.804 billion yuan, +31.86% year over year, net profit to mother 0.22 billion yuan, -16.17% year on year; single Q2 company achieved revenue of 2.451 billion yuan, +25.68% year over year, and net profit to mother 0.117 billion yuan, or -36.30% year on year.

The high level of cross-border growth is in line with expectations, and OEM growth is steady. By channel, in the first half of the year, the company's cross-border business revenue was 1.686 billion yuan, up 240.89% year on year; OEM/ODM business achieved revenue of 2.461 billion yuan, +10.62% year over year, of which Yongyu Home achieved revenue of 0.737 billion yuan, +5.88% year over year, and realized net profit of 0.082 billion yuan, or -16.77% year on year. By category, panel furniture, others, new material flooring, office furniture, and upholstered furniture achieved revenue of 0.446 billion yuan, 1.081 billion yuan, 0.731 billion yuan, 1.873 billion yuan, and 0.665 billion yuan in the first half of the year, compared to -10.24%, +410.82%, +5.26%, and +14.94%. +18.49%.

Gross margin declined, and the expense ratio increased during the period. The company achieved a gross profit margin of 21.16% in the first half of the year, -2.55pct year on year, which is expected to be partly affected by the increase in sea freight charges (China export container freight index +41.41%/+17.51% year-on-year in the first half of 2024). The cost rate for the first half of the year was 15.54%, +0.65pct year on year, of which the sales/management/ R&D expenses ratio was +0.76pct/-1.20pct/-0.76pct. The financial expense ratio was far less than 98.4655 million yuan plus 1.85pct year-on-year due to exchange earnings of 26.4811 million yuan in the first half of the year.

The launch of the new warehouse supports the development of cross-border e-commerce business. Recently, the company plans to lease a warehouse located in Linden, New Jersey, USA. The lease area is about 0.023 million square meters, the lease amount is about 0.124 billion yuan, and the lease period is 53 months.

Over the past 12 months, the company has leased a total of 7 overseas warehouses (excluding this lease), with an area of about 0.26 million square meters and a rent of about 1.209 billion yuan.

Investment advice: Relying on cross-border e-commerce channels, the company gradually changed from a traditional OEM to a full-chain brand enterprise, and the company's texture continued to improve. We expect the company's net profit to be 0.502 billion yuan, 0.611 billion yuan, and 0.745 billion yuan in 24-26, maintaining a “buy” rating.

Risk warning: New channel expansion falls short of expectations, global trade risks, and the risk of continued downturn in domestic real estate.