Incident: 2024H1's revenue of 3.908 billion yuan increased 19.77%; net profit to mother of 0.244 billion yuan decreased by 15.43%; net profit not attributable to mother of 0.235 billion yuan increased 7.47%. Q2 revenue of 2.425 billion yuan increased by 12.74%; net profit to mother of 0.156 billion yuan decreased by 27.34%; net profit after deducting non-return to mother of 0.154 billion yuan decreased by 3.72%. The interim dividend ratio is 95.43%, and the dividend rate is 3.04%.

Strengthening the township channel layout, the board business achieved high growth: if Yufeng and Hantang were excluded, the company's 2024H1 revenue increased by about 26%, mainly due to the company's downward channel layout; H1 net profit after deducting non-current assets increased by 7.47%, mainly due to a year-on-year decrease of 0.043 billion yuan in profit and loss from non-current assets disposal in the current period. If Yufeng Hantang were excluded, the company's net profit withheld from mother increased by about 20%. Looking at 2024H1 by business: revenue from decorative materials increased by 29.01% at 3.282 billion yuan, of which revenue from boards/brand royalties and other decorative materials was 2.146/0.219/0.916 billion yuan, +41.45%/-11.59%/+17.71% year-on-year. The board achieved a high growth rate. The company accelerated the layout of the township market, expanded the amount of cooperation with local furniture manufacturers, and quickly seized the township market share. Custom home furnishings revenue of 0.594 billion yuan also decreased by 11.41%. Of these, whole-house customization of 0.3 billion yuan increased by 22.04%, collaborating with dealers in core cities to connect with leading equipment businesses, and retail promotion was very effective; Yufeng Hantang's revenue of 0.134 billion yuan also decreased by 48.63%. The company actively controlled the scale of risk and focused its business on central enterprises and state-owned enterprise customers.

Channel and product restructuring led to a decrease in profit margin: 2024H1 gross profit margin decreased by 17.47% to 2.89pct, of which gross margin of decorative materials/custom home furnishings was 16.74%/20.71%, -3.06/-0.33pct year-on-year, mainly due to lower gross margin of township channel products. The cost ratio during the H1 period decreased by 6.95% to 2.81 pct. Among them, sales/management/R&D expenses were 3.88%/2.82%/0.74%, respectively, -0.47/ -1.69/ -0.24 pct. The decrease in management expenses was reduced by 0.037 billion yuan in equity incentive expenses. The asset and credit impairment loss rate was 2.03% and increased by 1.37pct. Channel and product structure adjustments combined to increase impairment losses, and the H1 net profit margin decreased by 2.60 pct to 6.25%. 2024H1 operating cash flow of 0.278 billion yuan decreased by 44.16%.

Investment advice: We predict that the company's net profit for 2024-2026 will be 0.659/0.801/0.938 billion yuan, a year-on-year growth rate of -4.46%/+21.57%/+17.12%, corresponding EPS of 0.79/0.96/1.13 yuan/share, respectively. The latest closing price corresponds to 2024-2026 PE 11.62x/9.56x/8.16x, respectively. Maintain an “Overweight” rating.

Risk warning: macroeconomic downside risks; channel development falls short of expectations; industry competition intensifies.