Company releases 2024 semi-annual report

24Q2 revenue of 2.45 billion, +25.7% year on year; net profit of 0.12 billion yuan, -6.3% year on year; net profit without return to mother 0.12 billion, -29.2% year on year;

24H1's revenue was 4.8 billion, +31.9% YoY; net profit attributable to mother was 0.22 billion, -16.2% YoY; net profit without return to mother was 0.22 billion, -9.2% YoY.

Revenue growth is mainly due to the gradual results of the company's manufacturing Tuker+ brand overseas business plan; profit declined mainly due to: ① increasing market share and new product promotion and marketing expenses; ② 23H1 exchange income of 98.4655 million yuan, 24H1 exchange income of 26.4811 million yuan; ③ 23H1 fixed asset disposal profit (land plant levy compensation) 28.1786 million yuan, 24H1 has no related income; ④ 24H1 shipping fee increased year on year; ⑤ additional 2024 share payment fees 9.9996 million yuan.

According to our estimates, if the above factors are excluded, we expect 24H1 operating profit +50% YoY and Q2 operating profit +100% + YoY.

By category, 24H1 office furniture/soft furniture revenue was 0.4/0.27 billion yuan, -7.9%/+26.7%, respectively, and gross margins were 21.3%/21.4%, respectively, +2.3 pct/+5.6 pct.

Cross-border e-commerce: high business growth, improved overseas warehouse construction

24H1 cross-border e-commerce revenue was 1.686 billion yuan, +240.89% year on year, continuing the high growth trend. Among them, the subsidiary Hengjian earned 1.48 billion yuan, +310% year over year, net interest rate 4.4%, -1.7 pct year on year, and profit was affected by sea freight charges.

The company has built a complete and high-quality supply chain system, and continues to deepen its global brand strategy. The sales channels cover mainstream third-party online e-commerce platforms at home and abroad, such as Amazon, Walmart, TEMU, and TikTok. We believe that the company has a high degree of sensitivity and execution in market control and platform operation.

Currently, the company has set up warehousing and distribution centers with a total area of about 0.35 million square meters in the five major regions of New Jersey and California, which accurately cover the distribution scope of end consumer products, continuously improve terminal sales and distribution timelines, and reduce cross-border logistics and transportation costs.

We expect to increase inventory preparation during the traditional peak e-commerce season in the second half of the year, and the decline in sea freight rates is expected to bring profit flexibility.

Manufacturing business: steady operation, continuous expansion of new customers

The 24H1 manufacturing business (OEM/ODM) achieved revenue of 2.461 billion yuan, or +10.62%; of these, Yongyu earned 0.74 billion yuan, +5.9% year-on-year, and a net profit margin of 11.2%. While the company is deeply involved in the European and American markets, the company is actively marketing by forming a new marketing team with R&D and design capabilities to provide customers with full-solution product design, and build localization teams in North America, the Middle East and other regions to enhance localized service capabilities, improve customer satisfaction, and promote business expansion.

Facing the impact of potential tariffs imposed by the US, the company is actively promoting the global production capacity layout. Currently, Vietnam's production capacity accounts for about 30% of total production capacity. In the future, the company will gradually release production capacity according to market and customer needs, and we expect that the impact of tariffs may be avoided.

Operating cash flow is steady, and profits are expected to improve in the second half of the year

24Q2 gross profit margin was 17.7%, 5-pct; sales/management/R&D/finance expense ratios were 4.7%/4.6%/2.3%/0.2%, respectively, -2.2pct/-0.9pct/-0.7pct/+4.8pct, respectively; net profit margin was 4.8%, year-on-year. The year-on-year decline in profitability was mainly affected by factors such as reduced exchange gains and losses and rising sea freight rates. We expect profit growth to improve in the second half of the year.

24H1's operating cash flow was 0.65 billion, +152.2% year over year, mainly due to increased bill payments along with the growth in business scale.

Adjust profit forecasts to maintain “buy” ratings

The company's core competitiveness in cross-border e-commerce continues to be consolidated and strengthened, and the traditional OEM business is expected to continue to be resilient. According to the mid-year report of 24, considering that shipping costs are still high despite falling year-on-year rates, we adjusted our profit forecast. The net profit for 24-26 is 0.52 billion/0.64 billion/0.8 billion (previous value 0.55 billion/0.67 billion/0.82 billion), respectively, and the corresponding PE is 8X/7X/5X, respectively, maintaining a “buy” rating.

Risk warning: Overseas demand recovery falls short of expectations; new cross-border e-commerce platforms are resistant to promotion; risk of declining core customer share, etc.