The company announced its 2024 mid-year report, and the performance was in line with expectations. 2024H1 achieved revenue of 8.908 billion yuan, up 0.3% year on year, net profit to mother of 0.896 billion yuan, down 3.0% year on year, net profit of 0.781 billion yuan, down 6.8% year on year; 2024Q2 single quarter revenue of 4.558 billion yuan, down 7.4% year on year, and net profit of 0.476 billion yuan year on year, down 9.1% year on year after deducting non-net profit of 0.405 billion yuan, down 18.4% year on year. The revenue side was affected by the migration of mattress production capacity from export sales and the Tianxi distribution schedule for domestic sales, and the actual performance was better; in addition, the profit side was affected by the high exchange base for the same period last year. 2024H1's exchange revenue was 0.033 billion yuan, a year-on-year decrease of 48.8%. If this effect is excluded, the net profit of 2024H1 to mother increased 0.5% year over year? Domestic sales: Under pressure from the external environment and high base, there are still bright spots in integrated two-pronged development and retail transformation, demonstrating medium- to long-term strategic strength. 2024H1's domestic sales revenue was 4.722 billion yuan, down 9.8% year on year, mainly due to: 1) the concentrated release of backlog demand in the early 2023H1 period, with a relatively high base; 2) weakening real estate combined with weak consumption power, putting pressure on the overall external environment; 3) Tianxi sent a table. However, the company's early strategy was firmly advanced, and the software category operation innovation and integrated overall strategy developed in a balanced manner. The overall customized store expansion maintained medium- to high-speed growth. The revenue of the customized category 2024H1 was 0.491 billion yuan, an increase of 24.9% over the previous year, and the overall integrated effect was remarkable; the speed of integrated store opening was further accelerated, and the overall package sales in integrated stores accounted for more than 35%. In terms of channel innovation, the complete channel layout was accelerated. The company launched the “Gujia Star Selection” exclusive product, covering various categories such as living rooms, restaurants, bedrooms, customization, etc., to provide customers with integrated overall products. A complete assembly business management department was set up at the organizational level, and the four cooperation models were fully promoted. Continuing to promote retail transformation in the medium to long term, the company has achieved 100% coverage and application of retail distribution systems and product operation systems; firm retail assessments to reduce terminal inventory; effectively implement product operations through product communication and sample system management; implement traffic and member private domain operations through system tools; and warehouse distribution services continue to advance, and the coverage rate is expected to reach more than 50% by the end of 2024.

Export sales: Excellent growth performance, increasing the share of SPO and cross-border e-commerce businesses. The company firmly adheres to the four major strategies of “overseas production capacity layout, big customer strategy, localized operation, and supply chain optimization”. Foreign trade order performance was excellent in 2024. 2024H1 foreign trade revenue was 3.887 billion yuan, an increase of 12.6% over the previous year. If the impact of foreign trade mattress production capacity relocation is excluded, the actual growth rate is faster. Production capacity at Vietnam's base continues to rise, with significant increases in efficiency and cost reduction, production capacity assurance, and quality improvement. The Mexican base has significant advantages, improving delivery efficiency, and developing high-margin SPO business to enhance customer service experience while strengthening profitability. Affected by the imposition of anti-dumping duties on mattresses by the US, the company's mattress production capacity has gradually moved to the mainland of the United States. As production capacity in US factories climbs, it is expected that mattress foreign trade revenue will recover in the second half of 2024. In addition, the company actively carries out cross-border e-commerce sales, focusing on the functional single chair and single chair categories to achieve breakthroughs, enter new channels to open up the channel structure, adjust the product structure, and enhance overall profitability; quickly introduce product and operation professionals in organizational construction, and establish training plans to build long-term competitiveness.

Profit side: Lean management drives supply chain efficiency, compounded by rising production capacity at overseas bases, and significant improvement in gross margin. The company's 2024H1 net interest rate was 10.3%, down 0.1 pct year on year. Among them, the net profit margin for single 2024Q2 was 10.8%, up 0.2 pct year on year, and 1.0 pct month-on-month. If Q2 excludes the impact of exchange, the actual profit improvement is even more obvious. Looking at the detailed breakdown, 1) Margin side: The company's 2024H1 gross margin was 33.0%, up 1.5pct year on year. Of these, 2024Q2 gross margin was 33.0%, up 2.0pct year on year, and down 0.1 pct month-on-month. The gross profit margin of 2024H1 domestic trade was 37.8%, up 1.3 pct year on year, the gross profit margin of foreign trade was 26.0%, up 2.9 pct year on year. The company's internal management optimization, production efficiency improvement+cost control, combined with falling raw material costs, and gross domestic and foreign trade margins all showed an improvement; the proportion of high-profitability businesses such as SPO and cross-border e-commerce increased, driving the company's gross margin of foreign trade to continue to improve.

2) Expense side: The company's expense ratio for the 2024H1 period was 21.3%, with a year-on-year increase of 2.1 pct. Among them, the cost rate for the 2024Q2 period was 20.6%, an increase of 3.2 pct over the previous year. Looking at the spin-off, the company's 2024H1 sales/management/R&D/finance expenses rates were 17.0%/2.4%/2.0%/-0.2%, respectively, with year-on-year changes of +0.9/+0.2/+0.6/+0.3 pct. The company's various expense ratios have increased, mainly due to the fact that the cost investment is more rigid, and the revenue side is affected by the external environment.

The president increased his holdings significantly, demonstrating confidence in long-term development. The company announced that Li Donglai, the director and president of the company, plans to increase his shareholding by 0.15-0.22 billion yuan within 3 months through the secondary market. Previously, Li Donglai held a total of 2.4% of the company's shares.

This large increase in holdings will further strengthen Li Donglai's interests and the company's interests. At the same time, it also shows Li Donglai's firm confidence in the company's future development.

Looking forward to the future: Long-term accumulation of products, channels, and brands will become a moat for the company's steady future growth.

Product: Cultivating diversified categories, integrating the whole family ready to go, and the integrated two-wing strategy continues to advance. The company announced an integrated two-wing strategy, with “one customer brand” as the main body, integrating the entire business breakthrough and software category operation innovation development, in line with the one-stop consumer trend, integrating R&D, manufacturing, design and supply chain services, giving full play to the advantages of software+customization, achieving differentiated competition through integrated overall breakthroughs, and increasing customer unit value through integrated overall breakthroughs. With the entry of Yingfeng Group, the resources in the home furnishing industry chain are expected to empower the company and further advance towards a whole-house household!

Channel: Improve the quality and efficiency of operations and accelerate retail transformation. 1) Channel model, home ① mainly new homes, with high category linkage; ② channel value accounts for a high proportion of terminal services; ③ the development of the company's categories is relatively balanced, so the regional retail center is the most suitable organizational structure for the company at present, and also lays the foundation for subsequent 1+N+X store upgrades and category integration; 2) retail transformation, where the company actively lays out in the fields of warehousing and service systems, membership systems, store informatization, and process digitization. The essence is to shift from a manufacturing enterprise that wants to improve the quality and efficiency of the supply chain to a retail enterprise that creates value for users Type. Currently, the company has implemented a retail distribution system 100% application coverage with product operation systems to accelerate retail transformation. The barriers to system construction are high, and all aspects complement each other to ultimately improve the service experience and create value for consumers. This will also become a long-term moat for the company.

Brand: Gradient brand matrix, long-term marketing launch. In addition to the main brand “Gujia Home Furnishing”, the company also has the high-end sub-brand “Juli”, the German high-end brand “ROLF BENZ”, and has strategic cooperation with the American high-end functional sofa brand “LAZBOY” and the Italian high-end home furnishing brand “NATUZZI” to increase the coverage of the customer base. The company continues to conduct long-term marketing campaigns, focusing on content marketing and brand rejuvenation, digitally empowering terminal channels for marketing; building a membership system and customer service to strengthen customer stickiness and establish brand power.

The consumer attributes of the software circuit continue to increase, and the share of stock is increasing to hedge against the impact of real estate beta. The company's professional manager management lays the organizational foundation, the all-category household strategy is progressing steadily, channel changes promote category integration, empower terminal stores, build long-term system capabilities, and help retail transformation. Globalization strategies are progressing steadily, and the share of differentiated high-margin businesses such as SPO and cross-border e-commerce has increased. Yingfeng Group takes over, and synergy effects in multiple fields are expected to be unleashed. Considering that real estate data is still weak and consumption power is weak, we slightly lowered the company's 2024-2026 net profit forecast to 2.082/2.224/2.442 billion yuan (previous value was 2.252/2.584/2.969 billion yuan), up 3.8%/6.8%/9.8% year-on-year respectively. The current market value corresponds to 2024-2026 PE 10/9/8 times, respectively, maintaining the “buy” rating!

Risk warning: Real estate data continues to be sluggish, and spending power is weak.