Incident: On August 27, 2024, the company released its 2024 semi-annual report. 24H1 achieved revenue of about 3.908 billion yuan, +19.77% year over year, net profit to mother of about 0.244 billion yuan, -15.43% year on year, net profit without return to mother about 0.235 billion yuan, +7.47% year on year. Looking at a single quarter, 24Q2 achieved revenue of about 2.425 billion yuan, +12.74% year-on-year, realized net profit of 0.156 billion yuan, or -27.34% year-on-year, and realized net profit after deduction of about 0.154 billion yuan, or -3.72% year-on-year. At the same time, the company's mid-term dividend plan is to distribute a cash dividend of 2.8 yuan (tax included) for every 10 shares, for a total dividend of 0.23 billion yuan, accounting for 94.21% of the net profit due to mother for the period.

Revenue from decorative materials remained high, while revenue from custom home furnishings declined slightly. In the first half of '24, in the face of insufficient domestic home improvement demand and increased market competition, the company team firmly promoted various business development goals and maintained steady development. The 24H1 decoration materials business/custom home furnishing business achieved revenue of about 3.282/0.594 billion yuan, +29.01%/-11.41% year-on-year, gross margin of about 16.74%/20.71%, year-on-year, -3.06/-0.33pct.

1) The decorative materials business continues to promote multi-channel operations: 24H1's decorative materials business revenue from board products was about 2.146 billion yuan, +41.45% year over year, board brand usage revenue (including easyinstall brand usage fees) was about 0.219 billion yuan, -11.59% year over year, and revenue from other decorative materials was about 0.916 billion yuan, +17.71% year over year. The company accelerates channel sinking and intensive distribution in traditional retail channels, focusing on developing and concentrating on the township market. 24H1 has completed 742 township store investments and 421 township store construction. As of 24H1, there are 4,322 decoration materials stores, including 1,168 township stores and 914 easy-to-install stores. In addition, the company continues to strengthen small-B-side development, and channels such as furniture factories, home improvement companies, and tooling businesses are growing steadily.

2) The custom home furnishing business division grew steadily, with Qingdao Yufeng Hantang holding revenue of about 0.3 billion yuan in the 24H1 retail sector, +22.04% over the same period, adhering to the mid-to-high-end positioning, with four high-quality substrates as the core, and building a strong regional brand based in East China. 24H1 has 800 custom home furnishing stores, including 340 comprehensive home furnishing stores (including 252 whole-house customization), 248 whole-house customization businesses, 143 flooring stores, and 69 wooden stores; Han Tang 24H1 achieved revenue of about 0.134 billion yuan, or -48.63% over the same period. The business strategy is based on continuous scale reduction, focusing on high-quality real estate customers, and developing engineering agency services to increase the share of engineering agents' revenue through the Bunny Baby Channel.

Fee control has been effective, and impairment losses have increased. The 24H1 company's expense ratio was about 6.95%, -2.81 pct. Among them, sales/management/R&D/finance expenses were 3.88%/2.82%/0.74%/-0.50%, respectively, -0.47/-1.69/-0.24/-0.41 pct year on year, respectively. The 24H1 company's management expenses rate declined significantly, mainly due to a reduction in equity incentive expenses; the decline in financial expenses was mainly due to a year-on-year decrease in interest expenses and a year-on-year increase in interest income. Despite a significant decrease in the expense ratio, the company's 24H1 credit and asset impairment losses totaled about 0.079 billion yuan, +264.11% over the same period, or impairment of various accounts receivable from the subsidiary Qingdao Yufeng Hantang. Combined with 23H1's high non-recurring revenue base, the company's 24H1 net profit ratio was -15.43% to 0.244 billion yuan, and the net profit margin to mother was 6.25%, -2.60pct year over year; after deducting non-recurring profit and loss factors, net profit of non-return to mother +7.47% to 0.235 billion yuan, after deducting non-recurring profit and loss factors, net profit margin of 6.00%, year-on-year.

Accelerate the construction of a new retail model to help the steady development of the store business. In order to cater to online traffic and changes in the purchasing habits of young consumers, the company's new retail center continues to enable dealer stores to transform into a new retail marketing model, jointly build a new 1+N retail matrix with the company, operate e-commerce and new media platforms such as Tmall, JD, and Douyin, and provide business dispatch and brand promotion capabilities for dealer stores. As of 24H1, more than 2,000 stores have implemented the new retail business model. Among them, more than 500 stores have achieved high-quality new retail operations, an increase of 100 over the end of 23. We believe that the company is speeding up the construction of a new retail model, which is conducive to attracting customers from the same city through online operations and helping the store business develop smoothly.

Investment advice: We believe that as a domestic board leader, the company has solid brand, product and channel advantages. In recent years, it has continued to make efforts to build small B-side channels, which is expected to become the core driver for the company's subsequent high performance.

We maintain our previous profit forecast. We expect the company's net profit to be 7.77, 8.87, and 1,030 billion yuan for 24-26, respectively. The current price corresponds to PE of 9.94, 8.71, and 7.50 times, respectively, to maintain a “buy” rating.

Risk warning: The financial situation of real estate developers fell short of expectations, the recovery of real estate sales area fell short of expectations, and the development of whole-house customization channels was blocked.