Incident: The company released its 2024 semi-annual report: in the first half of 2024, the company achieved revenue/net profit to mother of 3.958/0.234/0.223 billion yuan, an increase of 4.02%/5.14%/5.12% over the previous year. 24Q2 achieved revenue/ net profit attributable to mothers/ deducted non-net profit of 2.196/0.16/0.149 billion yuan, a year-on-year decrease of 6.03%/0.64%/8.30%.

Engineering, foundry, and cross-border businesses maintain a good trend: In terms of independent brand retail, offline companies use “retail transformation and high-quality operation” as the starting point to expand channels through optimization of store openings, top equipment distribution, channel sinking, etc., and increase trade-in pilot projects. Model cities are taking the lead in starting a community store model operation, but the industry is under pressure and the company is in the stage of organizational restructuring and assessment model adjustment. Offline revenue is temporarily under pressure; on the online side, the company expanded Pinduo channels and increased the operation of the content cultivation platform, which is relatively stable overall. In terms of independent brand engineering, the company continues to expand new customer types, actively explore large international hotel group customers, serviced apartment customers, etc., innovate hotel cooperation models, and achieve high revenue growth. In terms of contract processing, efforts to develop new customers have been stepped up, and business growth in potential regions such as Latin America, Europe, and Belt and Road has been strong. In terms of cross-border e-commerce, the company maintained rapid revenue growth by digging deeper into user needs, optimizing design and cost, improving competitiveness.

Profitability is relatively stable: 24H1/24Q2, the company's gross profit margin was 34.77%/35.82%, a year-on-year decrease of 0.46/1.19pct, mainly due to changes in channel structure. In terms of expenses, the company's sales/management/R&D/finance rates for the first half of '24 were 19.43%/5.61%/2.28%/0.44%, respectively, a year-on-year change of -0.12/-0.05/+0.17/+0.40pct. 24Q2 The company's sales/management/ R&D/ finance rates were 19.65%/5.26%/2.06%/0.51%, respectively, with a year-on-year change of +0.35/ -0.10/+0.13/+1.31pct. The increase in financial expenses was mainly due to a decline in exchange earnings. The company's 24H1/24Q2 net profit margin was 5.90%/7.27%, up 0.06/0.39pct.

Looking ahead to the second half of the year, we will promote multi-channel growth: in the second half of the year, the company will continue to focus on optimizing and upgrading business quality, improving operational efficiency, and promoting cost reduction and efficiency. Offline focus on optimizing store openings, top equipment distribution, channel sinking, increasing large-scale pilot trade-in, exploring incremental and new services; actively launching new mattress products online, and developing home textile categories. At the same time, the company will continue to expand engineering, foundry, and cross-border e-commerce businesses, and we expect revenue to continue to grow rapidly with continued efforts. Furthermore, the country continues to optimize and adjust real estate policies, and has issued a number of policies to promote trade-in of household goods. It is expected that confidence in the development of the industry will further recover.

Investment advice: Xilinmen products cover the middle and low end markets, and engineering, foundry, and cross-border e-commerce businesses are steady.

We expect the company to achieve net profit of 0.55/0.6/0.66 billion yuan in 2024-2026. The current stock price corresponds to PE of 10x/9x/8x, maintaining the “recommended” rating.

Risk warning: Terminal sales fall short of expectations; channel development falls short of expectations; real estate market fluctuations; risk of exchange rate fluctuations.