Incident: The company released its 24-year semi-annual report. During the reporting period, net profit to mother, and net profit without return to mother were 3.908, 0.244, and 0.235 billion, respectively, with a year-on-year ratio of +19.77%, -15.43%, and +7.47%, respectively. Of these, 24Q2 achieved revenue, net profit to mother, and net profit without return to mother of 2.425, 0.156, and 0.154 billion, respectively, +12.74%, -27.34%, and -3.72% year-on-year, respectively.

The decline in townships and the expansion of furniture factory channels have borne fruit, and revenue from the decorative materials business has grown rapidly. 24H1 decoration materials revenue was 3.063 billion, or +33.4%. The main reason behind this was: 1) The retail sector accelerated the township market layout. The 24H1 decoration materials business completed 742 township store investments (23H1 was more than 400), and completed the construction of 421 township stores (23H1 was 186). As of 24H1, there were 4,322 decoration materials stores, including 1,168 township stores and 914 custom-made stores; 2) New retail centers continued to empower new stores to transform retail Marketing model. At the end of 24H1, more than 2,000 stores introduced a new retail business model; 3) Continuously expand the number of collaborations with local custom furniture factories to quickly seize market share. At the end of 24H1, the company's dealer system cooperated with about 20,000 furniture factory customers. The gross profit margin of 24H1's decorative materials was 10.83%, -0.42pct year on year, which was basically stable. 24H1's brand usage revenue was 0.222 billion, -12.14% year over year, which dragged down the overall revenue growth rate of the decorative materials business.

Custom homes focus on the retail market, and overall revenue is being dragged down by the engineering business. The 24H1 custom home furnishing business achieved revenue of 0.594 billion, compared to -11.41%. Of these, the whole house customization business achieved revenue of 0.3 billion yuan, compared to +22.04%. Qingdao Yufeng Hantang of the engineering customization business achieved revenue of 0.134 billion yuan, a year-on-year ratio of -48.63%, which clearly dragged down the custom home revenue. The reason behind this was mainly because the company actively focused on the retail market and expanded the channel business. On the one hand, the revenue from the engineering customization business was affected by the company's strategy of actively controlling the scale. Real estate completion has declined sharply, and the demand side of the engineering business is also under great pressure.

Implementing a mid-term dividend plan, the annualized dividend rate reached around 6%. The 24-year semi-annual profit distribution plan is to pay a cash dividend of RMB 2.8 (tax included) for every 10 shares. The dividend rate corresponding to the stock price on August 27, '23 is about 3%. Based on this calculation, the annualized dividend rate can reach 6%, maintaining a high return on the capital market.

Profit forecast and investment rating: Considering the significant year-on-year increase in the scale of 24H1 impairment, we lowered the company's profit forecast. We expect 24-26 revenue to be 10.111, 11.278, and 12.123 billion, respectively, +11.56%, +11.54%, and 7.5%, respectively, and net profit to mother of 0.618, 0.746, and 0.868 billion, respectively, -10.3%, +20.59%, and +16.38%, respectively. The corresponding PE is 12.38, 10.26, 8.82. The company has strong attributes of high ROE, high dividends, and high dividends, and maintains a “highly recommended” rating.

Risk warning: Decline in real estate completion; damage to brand image; decline in engineering business demand and credit risk.