Description of the event

The company achieved revenue of 1.442/0.105/0.083 billion yuan in revenue/net profit after deducting non-net profit in 2024H1, a decrease of 10%/26%/27%; of these, 2024Q2 corresponds to 0.816/0.076/0.064 billion yuan, respectively, a decrease of 11%/9%/15%.

Incident comments

Q2 Agency engineering is growing well, and retail channels continue to expand. In Q2, the company's revenue fell 11%, including -10%/-25%/+52% of the direct engineering/agency revenue in the bulk business, respectively. Among them, agency engineering maintained a superior growth trend, which was related to the company's continuous recruitment of agents to contribute to growth momentum. At the end of Q2, it already had about 1,000 engineering agents (more than 800 at the end of 2023); the direct engineering business was affected by the reduction in overall real estate delivery and the year-on-year decline in building security projects, and the company also selected cooperative customers for risk control and profit protection. With the project; although the apparent volume of the Q2 distribution business declined year over year, the “total shipment value of the distribution plus AAM model” caliber, which actually reflects retail channel business trends, may have a year-on-year increase of double digits, mainly due to the rapid rise in the number of dealers. H1 had a net increase of 15,801 to 52,368 companies (an increase of 43%), of which there was a net increase of 7,809 in Q2.

Q2 The growth structure continues to be optimized, and the share of clean-up business and non-residential demand has increased. Looking at the growth structure, the share of non-direct engineering businesses (mainly agency engineering and distribution business) with better payment conditions and risk control conditions increased by 7.9 pcts to 72.9% year on year, and the customer structure in the direct engineering business continued to improve. At the same time, the company is also actively expanding non-residential customers such as hotels and schools to gradually control dependence on new residential demand and increase the relative resilience of short- and medium-term income trends.

Q2 Profit remained stable. Among them, direct management and agency engineering were stabilized respectively, and AAM's share increased supporting profit margins. Q2 gross margin achieved a slight year-on-year increase of 0.03 pct, mainly related to a significant improvement in gross margin and share increase in other businesses (mainly AAM and brand partnerships). Q2 The gross margins of bulk/distribution/other businesses were -1.2/-4.3/+16.1pcts, respectively. Among them, the slight decline in gross margin was due to the impact of the growth structure, that is, the growth rate of agency engineering businesses with low gross margin was better, while direct engineering/agency engineering only decreased by 0.4/0.1 pct, respectively, to maintain a relatively stable profit through cost reduction and customer selection in a sluggish engineering market environment. Q2 Sales/management/R&D/finance expense ratio -1.0/+0.3/+0.002/+0.3 pct year on year; attribution/deduction non-net interest rate +0.3/-0.3 pct year on year.

The retail side is actively expanding, and the promotion of AAM and brand cooperation models opens up room for category growth and strengthens channel exploration. The company's dealer stores have expanded rapidly. The average increase in 2021-2023 was about 0.01 million households per year, with a net increase of about 0.01 million homes per year, and there is still plenty of room for additional coverage. At the same time, the company focuses on empowering the product side of various distributors, and continuously explores channel potential through AAM and brand cooperation models to enrich the category structure that can be supplied (in addition to wooden doors, including hardwood building materials and home appliances). Among them, the scale effect is an important support for the company to be able to supply diversified categories at a high cost. In addition, the AAM and brand cooperation model uses the authorized commission amount as revenue recognition (not the shipping amount) to include non-main revenue. The net interest rate of the corresponding business is very impressive, and the increase in its share has a significant impact on the profit statement (total non-main revenue in Q2 increased by 52%).

Continue to pay attention to new growth points driven by marketing changes. In the current context where capital flows from housing enterprises are under pressure, the company focuses on high-quality strategic customers, actively promotes marketing changes, and accelerates the expansion of dealer channels and agency engineering channels. New growth points are gradually emerging. The company's dividend rate reached 80% in 2023. If this level is maintained in 2024, the current dividend rate will be about 10%.

The company's net profit for 2024-2025 is estimated to be 0.35/0.37 billion yuan, corresponding PE of 8.5/7.9x.

Risk warning

1. Real estate sales and completion fell short of expectations; 2. The company's channel transformation progress fell short of expectations.