Incident Overview

Xilinmen released its 2024 mid-year report. 2024H1 achieved revenue of 3.958 billion yuan, +4.02% year over year; net profit to mother 0.234 billion yuan, +5.14% year over year; net profit without return to mother of 0.223 billion yuan, +5.12% year over year. On a quarterly basis, Q2 achieved revenue of 2.196 billion yuan in a single quarter, -6.03% YoY; net profit to mother was 0.16 billion yuan, or -0.64% YoY. In terms of cash flow, the net cash flow from 2024H1's operating activities was -0.174 billion yuan, mainly due to an increase in sales receipts in the current period.

Analytical judgment:

Deepen the improvement of business quality and market expansion to help restore industry confidence in the first half of 2024. The company achieved revenue of 3.958 billion yuan, an increase of 4.02% over the previous year. Competition in the furniture industry has intensified under multiple challenges in domestic and foreign markets, but the company has effectively responded with a multi-channel strategy to promote steady business growth. Overseas market expansion has achieved remarkable results. In particular, business growth is strong in Latin America, Europe, and the Belt and Road region. Cross-border e-commerce business has also maintained a rapid growth trend through design and cost optimization. In April, the company launched the smart sleep ecological brand AISE Bao, which integrates 100 patented technologies, enhancing product strength and added value, and optimizing the profit structure. With the adjustment and optimization of real estate policies and the release of dividends from consumer policies, industry confidence is expected to recover further. In the second half of the year, the company will continue to improve the quality of operations, enhance operational efficiency, and strive to continuously improve costs and efficiency; on the basis of ensuring steady development of multiple channels, the company will explore new volume and service innovation.

Profit side: Profitability is basically stable. In terms of exchange profit and loss affecting the expense ratio slightly increasing profitability, 2024H1's gross profit margin and net interest rate were 34.77% and 5.96% respectively, -0.46pct and +0.03pct, respectively. Among them, the gross profit margin and net profit margin for the Q2 single quarter were 35.82% and 7.30% respectively, -1.10pct and +0.32pct year-on-year, respectively. In terms of the period expense ratio, the 2024H1 company's period expense ratio was 27.76%, +0.40pct year on year. Among them, the sales expense ratio, management expense ratio, R&D expense ratio, and financial expense ratio were 19.43%, 5.61%, 2.28%, and 0.44%, respectively, and -0.12pct, -0.05pct, +0.40pct. The increase in financial expense ratio was mainly due to a decrease in exchange profit and loss in the current period, and the company's overall expense ratio and profitability were basically stable.

Investment advice

As one of the leading mattress companies in China, the company will benefit from increased industry concentration and the launch of more new products under its own brands to further improve its market position. At the same time, the company's gradual construction of a “1+N” omni-channel sales network with offline stores and online platforms as the core, as well as distribution stores and supermarket appliance stores, is expected to drive steady improvement in the company's performance. We are still optimistic that the company's future performance will return to a high growth rate. Under the overall pressure of downstream consumer demand and fluctuations in exchange rates and shipping costs, we lowered our profit forecast. We expect the company's business to be 9.253/10.074/11.051 billion yuan (previous value of 100.16/115.56/100 million yuan) and EPS of 1.36/1.58/1.85 yuan (previous value 1.68/2.09/- yuan), respectively, corresponding to the closing price of 14.44 yuan/share on August 26, 2024. PE is 8 times 11/9/11, respectively, to maintain the company “Buy” rating.

Risk warning

Risk of large fluctuations in raw material prices; risk of customer expansion falling short of expectations; risk increased by industry competition; on July 8, 2023, the company received a warning letter from the Zhejiang Securities Regulatory Bureau due to untimely disclosure of information.