Description of the event

2024H1 achieved revenue/net profit/net profit to mother of 3.721/0.172/0.16 billion yuan, or +41%/-8%/-25% YoY; of these, Q2 corresponds to 1.879/0.071/0.064 billion yuan, respectively, and +37%/-50% YoY.

Incident comments

Q2 Revenue increased rapidly, including the acceleration of US lines and rapid breakthroughs in new channels such as OTTO/independent stations. Q2 revenue also increased by 37%, broken down: [By region], the US line Q2 is estimated to have accelerated month-on-month, and H1 Europe and North America both increased by about 41%; [sub-channel] Amazon's B2C basic market maintained a high growth rate (H1 increased by 43%), and OTTO/independent sites grew rapidly (H1 increased by 97%/91%, accounting for 5%/3% of main revenue). Other B2C businesses also achieved high growth (H1 +68%). At the same time, the company actively developed new cross-border platforms such as Temu to seize platform dividends. [By category] It is estimated that the Q2 household category will continue to grow well. H1 furniture/home/pet/sports and outdoor activities also increased by 39%/50%/37%/3%, respectively.

Q2 Profits were disrupted by shipping price increases & cost plus investment, which were offset by last-end delivery and procurement optimizations. H1 gross margin decreased by 1.5 pcts, with Europe/North America -3.7/+2.0pcts, respectively. Q2 gross margin decreased by 2.2 pcts year on year, sales/management/R&D/finance expenses ratio was +2.0/-0.9/-0.4/+4.2pcts year on year, and net interest rate due to mother decreased by 3.4 pcts year on year. After excluding the impact of exchange, profit margin decreased 2.6 pcts year on year. Factors influencing profit disassembly: 1) Shipping: Higher freight rates put pressure on the profit side, and since there was a time lag between the departure of goods and the achievement of terminal sales, the Q2 report reflected more of the Q1 freight rate situation, and at the same time, the company reduced the impact of the freight rate increase to a certain extent with long-term cooperation agreements; 2) Performance: It is estimated that Q2 unit delivery costs have risen slightly, and the company's continued overseas warehouse construction and increase in spontaneous ratio are offset by the company's continued overseas warehouse construction and increase in spontaneous ratio. 3) Procurement: Q2 procurement results are still under control. Continued cashing; 4 ) Marketing: In order to accelerate the development of the US line market, H1 advertising fees also increased by 81%. 5) Share payment: H1 added a share payment fee of 7.2477 million yuan, which also disrupted Q2 profits.

The company's work priorities this year include: 1) Product serialization. The company focuses on SONGMICS HOME's core brand to further create serialized scenario-based products. The first batch of serialized products, EKHO Collection, has been released and launched, covering restaurants, bedrooms, dining rooms, kitchens, etc. 2) Continue to reduce overall costs and improve efficiency, including promoting standardization and standardization of materials, processes, components and connectors in the production process, promoting second-level material collection, launching the IBP Phase III supply network, and strengthening the level of informatization in the ecosystem to continuously improve efficiency. At the same time, by increasing the share of Southeast Asian procurement to optimize costs & efficiency, the company aims to increase the proportion of Southeast Asian shipments to the US by about 20%. 3) Optimize warehouse distribution. The European region promotes delivery from front warehouses such as France and Spain, and the US region encrypts overseas warehouses to increase the spontaneous proportion of last-end processes and optimize the timeliness and cost of last-end execution. By the end of H1, the company's overseas self-operated warehouse area had reached more than 0.35 million square meters. 4) Steady growth in Europe, breaking through the US, including focusing on Amazon Vendor channels and focusing on top listed products.

It is a pioneer in cross-border overseas households, and its competitiveness continues to improve. This year, the company sought change and optimization in multiple dimensions: product serialization, improvement of warehouse distribution & procurement layout, overall cost reduction and efficiency, etc. The direction was to continue to grow and the US line to accelerate breakthroughs. In terms of growth, increase share, expand categories, expand channels (OTTO/temu/shein/TK and offline KA channels, etc.), and expand regions in parallel. The impact of profit-side shipping is short-term, and the spontaneous increase in Vietnamese procurement will help boost the competitiveness of the US line. If shipping rates return to normal in the future, profit flexibility can be expected. The company's equity incentive program continues to drive growth. The company is expected to achieve net profit of 0.41/0.54 billion yuan in 2024/2025, corresponding to the current PE of 17/13x, maintaining a “buy” rating.

Risk warning

1. The improvement in external demand fell short of expectations; 2. The operating results of the company's e-commerce platform fell short of expectations; 3. Shipping costs continued to rise.