Key points of investment

24H1 performance is relatively steady, and the Q2 month-on-month trend is under pressure

24H1 achieved revenue of 1.308 billion yuan (+2.8% YoY), net profit to mother of 0.218 billion yuan (-0.6% YoY), and net profit of 0.193 billion yuan after deduction (-0.5% YoY), and overall performance remained steady.

24Q2 achieved revenue of 0.656 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 after deduction (-3.7% YoY). Revenue remained steady, and net profit to mother declined more year over year, mainly due to increased sales expenses and reduced government subsidies.

Single-store sales declined year-on-year, maintaining an active store opening policy

By channel: 24H1 e-commerce, direct management, franchise, and other (group home purchase) revenue was 5.3/0.31/0.33/0.14 billion yuan, respectively, -0.6%/+1.9%/+33.3% year-on-year; of these, 24Q2 e-commerce, direct business/franchise/other (group home purchase) revenue was -2.8%/-5.6%/-2.0%/+48.7%. The year-on-year growth rate of both online and offline stores was weaker than Q1, which is expected to be mainly due to a decline in single-store sales (including 24H1 direct stores) All sales (0.6215 million yuan, down 5.9% year on year), but the impressive growth rate of group home purchase revenue led to a positive growth in overall Q2 revenue.

By product: 24H1 kit/quilt/pillow/other product revenue was 5.9/0.48/0.11/0.14 billion yuan respectively, up 1.3%/3.8%/0.9%/7.6% year on year; by region: 24H1 South China/East China/North China/Southwest China revenue was 4.4/0.29/0.17/0.2 billion yuan respectively, up 3.8%/0.4%/2.8% year on year.

In terms of the number of stores, 24H1 direct-run stores opened 21/7 closed, 14 stores closed at the end of the period, 498 stores at the end of the period; 39/16 new franchisees were closed, 23 net stores were opened, and 1,033 stores were opened at the end of the period. Of the 60 newly opened stores, 38 are new image stores, continuing to strengthen the brand's upward momentum.

Gross margin bucked the trend. Net margin was affected by sales expenses and non-profit and loss. 24H1's gross profit margin was 55.0% (+0.8pp year over year), and 24Q2 gross profit margin was 55.8% (+1.8pp year over year).

The gross margin of 24H1 e-commerce, direct management, franchise, and other channels was 46.5%/68.0%/53.2%/62.4%, respectively, +2.0/-7.1pp, year-on-year. Faced with challenges such as increased e-commerce competition and weak offline customer flow, the company has formulated a hierarchical product management system to avoid internal price consumption on various platforms, always follow high-quality development, and take profit as the core consideration.

24H1's net interest rate was 16.7% (-0.6pp), 24Q2 net profit margin was 14.6% (YoY -2.0pp). The main reasons for the decline in net interest rates: 1) H1/Q2 sales expenses were +1.8/+2.6pp, respectively, due mainly to increased advertising expenses, new store decoration costs, and Baoying factory leasing costs; 2) 24H1 government subsidies and financial investment income decreased by 5.93/1.73 million yuan respectively compared to 23H1, accounting for 0.6% of current revenue.

Fluctuations in cash flow and inventory are due to the 24H1 increase in the price of down, which may benefit the 24H1 net operating cash flow of 0.093 billion yuan (-67.2% year over year) and final inventory of 0.82 billion yuan (+11.1% year over year). The fluctuations are mainly due to the company's strategic reserves of raw materials for production such as down in advance based on research and judgment on the future market environment. Considering the sharp rise in duck feather/goose down prices since this year and the company continues to increase the added value of products through design innovation, we expect price increases for autumn and winter down products to be strong, and profit margins are expected to benefit in the second half of the year.

Profit forecasts and investment suggestions:

The company continuously enhances brand value in terms of products, channels, etc., and at the same time relies on an intelligent supply chain to continuously improve retail efficiency and pursue high-quality growth centered on profit. We expect to achieve revenue of 3.07/3.32/3.58 billion yuan in 24-26, up 1.5%/8.1%/7.6% year on year, net profit of 0.57/0.62/0.68 billion yuan, up -0.3%/9.4%/8.9% year on year, corresponding to 11/10/9 times PE. The company's performance is steady, undervalued, and the high dividend attributes stand out, and maintain a “buy” rating.

Risk warning: Prices of raw materials fluctuate greatly, store openings fall short of expectations, and e-commerce competition further intensifies