Key points of investment

Company Announcement 24H1 Interim Report:

24H1 achieved revenue of 1.21 billion yuan (YoY +27.7%), net profit of 0.285 billion yuan (YoY +41.8%), net profit of 0.258 billion yuan (YoY +48.1%); of these, 24Q2 achieved revenue of 0.648 billion yuan (+25% YoY), achieving net profit attributable to mother of 0.164 billion yuan (+32% YoY), net profit not attributable to mother of 0.144 billion yuan (YoY +29%), Q2 Revenue continues to exceed market expectations, driven by new products, new customers, and new brands, and profits also surpassed the high exchange base.

New products, new customers, new brands drive growth

1) Strong product strength combined with high quality explosives accelerates order repair and share increase for old customers. In recent years, the company launched the core hit video sofa model, relying on new popular companies to promote customer expansion and accelerate share growth. 70% of 24H1's top ten customers were retailers, and revenue rose 7.37% to 747.06% respectively. Of these, 4 customers exceeded 50%, 3 of which exceeded 200%. This year, the company was also awarded the “Newest Supplier 2024” by Farmers (founded in 1949 and has 260 self-operated stores).

2) Customers expand in an orderly manner, and new customers continue to contribute more and more. Relying on the company's strong product strength and the chairman's strong market ability, the company had 34 Xintuo customers in '23, 24 Xintuo customers in 24Q1, and 25 Xintuo customers in 24Q2. Up to now, the company has continued the trend of accelerating customer development, and new customers have continued to contribute to increased performance.

3) The new brand began shipping as scheduled. In '23, the company launched the high-end brand Motoliving and began gradual shipments. As of 24Q1, the company has received orders worth tens of millions of dollars, and is currently gradually shipping.

Structural upgrades drive increased product gross margins

By product, smart electric sofa 24H1 earned 0.935 billion yuan, +36% year on year, gross profit margin +1.7 pct; smart electric bed 0.162 billion yuan, +11% year on year, gross profit margin 33.33%, +0.81 pct year on year; smart furniture accessories 0.094 billion yuan, +0.8% year on year, gross profit margin of 27.8%, +7.15 pct year on year. Profitability continued to be optimized with continuous promotion and the gradual contribution of high-end brands in shipping and exchange.

Due to factors such as foreign exchange contributions, the Q2 profitability performance was excellent. The gross profit margin of the 24Q2 company was 33.13%, +0.46pct year on year. As the share of new products increased, the gross margin of high-end products and the gross margin of spare parts increased steadily, the period expense ratio was 6.84%, -0.66pct year on year, of which the financial expense ratio was -4.62%, -1.14pct year on year. The exchange contribution performance was good. The management fee ratio was 3.73%, +0.98pct year on year, mainly due to the company's 2023 restricted stock incentive plan on July 7, 2023 Officially granted, 2024H1 shares paid a total of 16.635 million yuan in fees. The R&D expense ratio was 4.55%, -1.47pct year on year. The net return effect was evident. The comprehensive net interest rate to mother was 25.36%, +1.28pct year on year. 24Q2 net operating cash flow was $0.166 billion, +1.01% YoY.

Independent brands are expanding in an orderly manner, and store-to-store implementation is being accelerated

24H1 added 49 new customers, all retailer customers, which laid a solid foundation for the construction of the company's store-to-store model. As of the announcement date, the company has landed hundreds of stores, and the annual construction volume is optimistic. It is worth noting that 24H1 and the company's first batch of partner stores contributed more than 100% in revenue growth. We continue to be optimistic that the company's store-to-store model will drive brand building and performance growth.

Profit forecasting and investment advice

We expect the company to achieve revenue of 2.41/3.18/3.94 billion yuan in 24-26, up 25.5%/31.6%/24.1% year-on-year respectively, and achieve net profit of 0.52/0.64/0.78 billion yuan, respectively, +28%/+23%/+21% year-on-year, corresponding to PE 16X/13X/11X. We are optimistic about the company's brand building for a long time and maintain a “buy” rating.

Risk warning

Exchange rate fluctuations, raw material prices fluctuate, and independent brand expansion falls short of expectations.