The company released its 2024 semi-annual report: 24H1 achieved revenue of 3.958 billion yuan (YoY +4.0%), net profit of 0.234 billion yuan (YoY +5.1%); Q2 achieved revenue of 2.196 billion yuan (-6.0% YoY) and net profit of 0.16 billion yuan (YoY -0.6%). Q2 Profit performance is stable, and the channel structure continues to be optimized.

Mattresses & sofas are growing steadily, soft beds are declining overall, and retail sales are steady. We expect 24H1's dominant mattress category to continue to grow steadily, single Q2 growth will slow month-on-month, soft bed retail performance will be stable, the decline will be small, and sofas will grow faster. The price resilience of core categories is strong, and we expect the average retail price decline of all categories in 24H1 to be small.

Offline channels have been optimized and quality improved, and online e-commerce & cross-border performance is steady.

Brand: We expect 24H1's independent brand retail revenue to decline slightly. Among them, there will be many offline declines and steady online growth. Affected by the high base of 23Q2 and weak demand in 24Q2, we expect the 24Q2 online & offline channel growth rate to slow compared to 24Q1. The offline decline will expand, and online is expected to remain flat year-on-year. Stores continue to be optimized and operational quality improved. As of 24Q2, there were 3,485 Suxilinmen specialty stores (76 fewer in Q2), and 474 M&D ((summer map)) stores (13 fewer in Q2). Currently, the company focuses on home improvement distribution & community store channels, and Ximian's target for opening stores throughout the year is expected to be high.

OEM: As the company accurately implements a hierarchical classification strategy for overseas customers and business development is smooth, we expect the OEM processing business 24Q1 & 24Q2 to continue to grow rapidly.

Cross-border: The company sells products to the US and other regions through Amazon, Wayfair, Walmart, etc., and actively promotes independent brands to go overseas. We expect 24H1's cross-border e-commerce business to grow rapidly and continue to grow steadily in 24Q2.

Independent brand engineering business: The company promotes customer structure and business model optimization and improves business quality. The hotel decoration business is expected to grow steadily; in addition, with the recovery of offline travel scenarios, the hotel bedding business is expected to grow rapidly. We expect 24H1's own-brand engineering business revenue to grow beautifully and maintain rapid growth in Q2.

Under refined operation, the net interest rate has been improving steadily. The 24Q2 company's gross margin was 35.8% (-1.2pct year on year), and the net profit margin was 7.3% (+0.4pct year on year), and the net profit margin increased steadily. The 24Q2 sales/management/ R&D expense rates were 19.6%/5.3%/2.1% respectively (+0.3pct/-0.1pct/+0.1pct compared to the same period), which remained stable. In terms of operating capacity, the net operating cash flow for 24Q2 was $0.154 billion (-$0.276 billion), the number of inventory turnover days was 69 days (year-on-year -24 days), the number of accounts receivable turnover days was 45 days (+1 day year over year), and the number of accounts payable turnover days was 104 days (year-on-year +6 days), which is relatively healthy.

Profit forecast and investment rating: The company's domestic offline and e-commerce businesses are expanding simultaneously, and overseas processing and cross-border business growth have accelerated and the operation is steadily improving. We expect the company's net profit to be 0.52 billion yuan, 0.62 billion yuan, and 0.73 billion yuan respectively in 2024-2026, corresponding to PE of 10X, 8X, and 7X, maintaining a “buy” rating.

Risk warning: Real estate decline exceeded expectations, consumption recovery fell short of expectations, and industry competition intensified.