Incidents:

The company released its 2024 mid-year report. In the first half of 2024, the company achieved revenue of 2.21 billion yuan, and realized net profit of 0.15 billion yuan, or -17.0% year on year; of these, 2Q2024 achieved revenue of 1.39 billion yuan, or -6.9% year on year, and realized net profit to mother 0.1 billion yuan, or -20.6% year on year.

Comment:

The wooden door business continued to grow, with outstanding overseas business performance: 1H2024, kitchen cabinet/wardrobe/ wooden door achieved revenue of 0.97/0.93/0.14 billion yuan respectively, -3.7%/-5.9%/+6.9%, respectively. Looking at each channel, direct/distribution/bulk channels achieved revenue of 0.17/1.17/0.61 billion yuan, respectively, of -8.2%/-10.9%/+8.2%, respectively. Of these, bulk revenue accounted for 27.4% of revenue, +3.1 pcts year-on-year. Affected by the poor domestic real estate boom, the company's revenue from kitchen cabinets and wardrobe products declined, but driven by the integrated development strategy and the addition of new stores, the company's wooden door business revenue continued to grow.

Furthermore, the company actively lays out emerging overseas markets, promotes brands to go overseas, and export revenue has increased dramatically. 2024H1's overseas business achieved revenue of 0.09 billion yuan, +42.7% year-on-year. The company has been in Times Square in New York for 8 consecutive years. With strong brand influence, high-quality products and high-quality fulfillment service capabilities, the products have been exported to many countries and regions such as Australia, North America, Southeast Asia, the Middle East, etc., and will continue to carry out investment promotion work and expand overseas markets in the future.

2Q2024, kitchen cabinet/closet/wooden door achieved revenue of 0.65/0.54/0.09 billion yuan, respectively, -5.1%/-14.0%/+4.8% year-on-year, respectively. By channel, direct/distribution/bulk channels achieved revenue of 0.08/0.71/0.46 billion yuan respectively, or -25.7%/-15.9%/+7.8% year-on-year, respectively.

By the end of 1H2024, the company had 4,931 stores, including 4911 dealer stores and 20 direct-run stores. Compared with 1Q2024, the number of dealer stores increased by 194. Looking at the dealer store breakdown, the number of 1H2024 kitchen cabinet/closet/wooden door stores was 1798/1993/1120, respectively. Compared with 1Q2024, there was a net increase of 39/81/74. 1H2024 distributors' single-store revenue was 0.24 million yuan, -17.6% YoY; direct-run stores earned 8.74 million yuan, +60.7% YoY.

Profitability was relatively stable in the first half of the year: 1H2024, the company's gross margin was 36.7%, -0.1 pcts year on year; by product, the gross margin of kitchen cabinets/closet/wooden doors was 38.8%/40.9%/17.2%, respectively, -0.5/+1.8/-0.7 pcts year on year.

By channel, the gross margins of direct/distribution/bulk channels were 69.3%/36.0%/35.5%, respectively, +0.1/-0.3/+2.2pct compared with each other.

The 1H2024 company's cost rate for the period was 29.4%, +3.4pcts year-on-year. By project, the sales/management/R&D/finance expense ratios were 16.9%/6.8%/5.9%/-0.1%, respectively, +1.8/+1.2/+0.1/+0.2pcts. Among them, the increase in the sales expense ratio is mainly due to an increase in advertising decoration costs and market service fees, while the management fee ratio is mainly due to an increase in share payment costs generated by equity incentives.

2Q2024, the company's gross margin fell 0.4 pcts year over year to 36.4%. By product, the gross margins of kitchen cabinets/closets/wooden doors were 37.4%/40.7%/18.5%, respectively, +1.6/-0.2/-4.3pcts. By channel, direct marketing/distribution/bulk channel gross margins were 69.2%/36.1%/35.2%, respectively, +1.0/-0.6/+1.7pcts.

The 2Q2024 company's fee rate for the period was 26.7%, +3.4pcts year-on-year. By project, the sales/management/R&D/finance cost rates were 15.7%/5.5%/5.3%/+0.1%, respectively, +2.0/+0.9/-0.2/ +0.6pcts compared to the same period.

The overall channel is developing well, and overseas business is actively expanding, maintaining the “buy” rating: due to weak domestic real estate sales and higher market competition than expected, we lowered the company's 2024-2026 revenue forecast to 6.08/6.48/7.3 billion yuan respectively (the reduction ranges were 9%/12%/12%, respectively), and the company's net profit to the mother in 2024-2026 was reduced to 0.55/0.59/0.66 billion yuan, respectively (the reduction ranges were 16%/18%/18%, respectively), corresponding to 2024 -In 2026, EPS was 1.26/1.34/1.51 yuan, respectively, and the current stock price corresponding to PE was 8/7/6 times, respectively. The company has a complete one-stop integrated model, and its products are being actively promoted overseas. The development momentum is good, and the “buy” rating is maintained.

Risk warning: The development of the complete business fell short of expectations, and the level of market competition exceeded expectations.