The company released its semi-annual report

The company's 24Q2 revenue of 1.88 billion increased by 37%; net profit due to mother decreased by 28% from 0.07 billion; net profit after deducting 0.06 billion decreased by 50%; 24H1 revenue 3.7 billion also increased by 41%, net profit due to mother of 0.17 billion decreased by 8%, and net profit not returned to mother decreased by 25% after deducting 0.16 billion.

Revenue growth is due to outstanding sales of new products and new products, and has become the core force for revenue growth; North America is a strategic development priority in 2024 to improve its sales and profitability by reducing costs, optimizing local fulfillment networks, and increasing market share; in terms of channels, the company is working on emerging platforms such as OTTO, Temu, and Shein to create a new engine for revenue growth.

The main reasons for the decline in performance are: 1. Strategies to increase market share, a year-on-year decrease in the average unit price of product sales and an increase in new product promotion and marketing expenses; 2. Affected by the Red Sea, the year-on-year increase in shipping costs and the expansion of the scale of business development, leading to an increase in storage costs; 3. Exchange gains and losses after hedging instruments changed from 17.726 million yuan in the same period last year to a loss of 6.597 million yuan in the current period; 4. Additional 2024 equity incentive share payment fees of 7.248 million yuan.

Home furnishing products performed well and grew rapidly in Europe

By 24H1 revenue category, the furniture series revenue was 1.9 billion, up 39%, accounting for 52% of the total; the household series revenue was 1.3 billion, up 50%, accounting for 36% of the total; the pet series was 0.3 billion, up 37%, accounting for 8% of the total; 24H1 revenue by region, Europe was 2.3 billion, up 41%, accounting for 62% of the total; North America 1.3 billion also increased by 41%, accounting for 37% of the total. The company's business in Europe benefits from traditional competitive advantages and the expansion of platforms such as OTTO and Shein. In the North American market, as the company's strategic focus, the company focused on launching a large number of new products in the US market in the first half of 2024, making outstanding contributions. The company added 3 new tripartite cooperative warehouses in the US East, US, China, and South America, forming a 5-warehouse layout covering the East, West, South America, North America, and China, and further improving the market competitiveness of products by optimizing last-haul transportation strategies, including increasing spontaneity ratio and optimizing the shipping mix. Furthermore, the company has actively developed new platforms such as Temu, Target, and Tik Tokshop, contributing new growth points to the growth of performance in North America. Thanks to these initiatives, the company's competitiveness in the US market has increased.

In the 24H1 B2C revenue sub-channel, Amazon 2.5 billion also increased 43%, accounting for 69%; OTTO 0.18 billion increased 97%, accounting for 5%; 0.11 billion independent sites increased 91%, accounting for 3%; B2B online 0.29 billion also increased 0.5%, accounting for 8%; offline B2B 0.21 billion also increased 14%, accounting for 6%.

24H1 gross profit margin of 34.9% decreased by 1.5 pct; net profit margin of 4.6% reduced by 2.4 pct24H1, European gross profit margin 36.1%, same decrease of 3.7 pct; North American gross profit margin of 33.2%, same increase of 2 pct; gross profit margin of furniture series 34.7% decreased by 1.7 pct; gross profit margin of home series 35.9%, same decrease of 2 pcts.

The sales expense ratio of 24.7% increased by 1.8 pct in the current period, mainly due to an increase in platform transaction fees due to an increase in B2C platform sales scale and an increase in advertising fees due to increased investment in marketing activities; financial expenses of 0.82% increased by 2.5 pct, mainly due to large exchange gains in the same period last year.

Based on the concept of meeting customer needs, the company uses R&D innovation to enhance product value. The company focuses on the furniture and home furnishing field, uses the advantages of overseas localization teams to dig deeper into the demands of European and American consumers behind scenario-based home consumption, and forms a serial product matrix such as small household goods, large indoor furniture and outdoor furniture designed by combining different styles or materials such as modern style, pastoral style, and industrial style to help consumers achieve one-stop shopping solutions for home scenarios.

The scale effect of the supply chain is prominent, and the efficiency is high and the cost is excellent

As one of the leading enterprises in the furniture and home furnishing category, the company has obvious advantages in scale in product procurement, first-way transportation and last-end delivery, forming an advantage in active bargaining negotiations. Among them, in the final delivery process in the European market, the company's spontaneous price has a very obvious market advantage.

In terms of localized fulfillment capabilities, after years of accumulation of warehousing and logistics system layouts, the company has established an overseas “self-operated warehouse+platform warehouse+tripartite cooperative warehouse” warehousing layout, and has established stable cooperative relationships with well-known logistics companies such as DPD and UPS during the final delivery process, forming efficient last-range delivery capabilities.

In terms of self-operated warehouses, as of the end of June 2024, the company's overseas self-operated warehouse area had reached more than 0.35 million square meters. The US region completed the construction of a five-warehouse layout, comprehensively increased the density and coverage of the US overseas warehouse layout, and optimized the layout of the local warehouse network by combining self-owned warehouses and three-party warehouse cooperation. The proportion of spontaneous orders in the US market increased from 8.5% in January to 15.7% in June during the reporting period.

Continue to expand channel coverage and move from online to offline

In terms of sales channels, the company is based on online, covering regional and offline markets. While continuing to increase the market share of the Amazon platform, the company continues to expand traffic opportunities on emerging platforms such as Temu and SHEIN and the Hobby Lobby offline incremental market, and has built a European offline team to cultivate KA. The channel distribution is moving from “one super strong” to “fighting for supremacy”. After Temu opened semi-hosting in March 2024, the company as the first batch of semi-managed sellers to seize the platform's initial traffic dividends with its influence on self-operated overseas pallets, last-end fulfillment capabilities, and product competitiveness, providing a solid foundation for the development of the European site in the second half of the year.

Adjust profit forecasts to maintain “buy” ratings

The company made efforts on new platforms such as OTTO, Temu, and Shein to create a new engine for revenue growth; it achieved rapid growth in the company's revenue through a comprehensive and multi-step strategic layout. However, the company's net profit declined due to a drop in average product prices, an increase in marketing expenses, an increase in shipping costs, and an increase in storage costs. In view of this, we adjusted our profit forecast; net profit due to mother for 24-26 is estimated to be 0.43/0.58/0.73 billion yuan (original value was 0.5/0.61/0.73 billion yuan), corresponding EPS was 1.06/1.45/1.83 yuan/share, respectively, and PE was 16/12/9X, respectively.

Risk warning: Global shipping rates rise, industry competition intensifies, overseas demand declines, new product iterations fall short of expectations, risk of exchange rate fluctuations, etc.