The company released its 2024 mid-year report, and the profit side was in line with expectations. 24H1's revenue was 1.31 billion yuan (YoY +2.8%), net profit attributable to mother was 0.218 billion yuan (YoY -0.6%), net profit not attributable to mother was 0.193 billion yuan (YoY -0.5%). Among them, 24Q2 had quarterly revenue of 0.66 billion yuan (+0.5% YoY), net profit to mother of 0.096 billion yuan (-11.7% YoY), and net profit of 0.088 billion yuan (YoY -3.7%) after deducting non-return to mother net profit (-3.7% YoY). The main business is still resilient in a weak terminal retail environment.

Brand premiums contributed to the continued expansion of gross margin, but a healthy increase in sales expenses temporarily dragged down net interest rates slightly in the current period. According to the interim report, the 24H1 gross profit margin was 55.0% (+0.8 pct year on year), and the period cost ratio was 35.8% (+1.6 pct year on year). Looking at the spin-off, it was mainly a sales expense ratio of 28.8% (+1.8 pct year over year). Among them, advertising expenses increased by 23.88 million yuan year on year, container display and decoration costs increased 8.72 million yuan year on year. The cost rate for other projects did not change much, and the management/R&D/finance cost ratio was -0.3 pct/+0.5 pct/0.3 pct year over year. In the end, 24H1 net profit margin was 16.7% (-0.6pct year over year).

Strategic reserves of raw materials such as down provide potential flexibility for subsequent peak season sales. According to the interim report, 24H1's net operating cash flow was 0.093 billion yuan, a year-on-year decrease of 0.19 billion yuan, of which operating cash inflow slightly increased 0.06 billion yuan year over year, while the increase in outflow mainly came from the increase of 0.42 billion yuan to 0.81 billion yuan in cash from purchasing goods and receiving labor payments over the same period last year, including advance purchases of down and reserves for rising prices. However, inventory at the end of the 24H1 period only increased slightly by 0.08 billion yuan to 0.82 billion yuan year on year, and the number of inventory turnover days only increased slightly by 1.4 to 232 days year on year, continuing to maintain a steady inventory management strategy.

Looking at each channel, the ToC channel remains stable, and franchises are growing vigorously. According to the interim report, 1) Online: 24H1 revenue of 0.53 billion yuan (-0.6% YoY), remained stable against the backdrop of online market pressure, with a gross profit margin of 46.5% (+2pct), avoiding online price wars and adhering to the idea of improving margins. 2) Direct management: 24H1 revenue of 0.31 billion yuan (-0.9% year over year), gross profit margin of 68.0% (-0.5pct year on year), 498 stores at the end of the period (21-new customs 7 = net opening 14). 3) Joining: 24H1 revenue of 0.33 billion yuan (YoY +1.95%), gross profit margin of 53.2% (YoY +1.95pct), 1,033 stores at the end of the period (39 newly opened - 16 new = net open 23). It is worth noting that among the 60 new stores, there are 38 new image stores, further opening up a brand tone that competes with the same industry, showcasing high-end quality, and providing a solid foundation for continued brand premiums.

As a national brand of home textiles in China, Fuana operates steadily, guarantees continuous high dividends, and has scarce assets, and the rating was downgraded from “buy” to “increase”. According to the interim report, at the end of 24H1, the company had monetary capital and transactional financial assets of 0.85 billion yuan, and the inventory included large-scale price increases and raw materials such as down with strong monetization. Short-term loans were 0.08 billion yuan, and long-term loans were zero, so it had both risk resilience and potential expansion conditions. In view of the current weak domestic consumption environment, we lowered the number of stores opened in 24-26 and raised the sales expense ratio, so we lowered our 24-26 profit forecast. We expect net profit to mother of 0.55/0.6/0.65 billion yuan for 24-26 (originally 0.63/0.7/0.77 billion yuan), which corresponds to PE 10 times 12/11/10 times. Referring to the valuation of comparable brand companies in the textile industry, PE was given 13 times in 24 years, with a target market value of 7.3 billion yuan. There is room for a 15% increase compared to the total market value of 2024/8/23, and the rating was lowered from “buy” to “increase”.

Risk warning: Domestic retail recovery fell short of expectations; industry competition intensified; commercial housing and residential sales fell short of expectations.