Event Overview: The company publishes the 2024 semi-annual report. 24H1 achieved revenue of 3.908 billion yuan, +19.77% YoY, net profit of 0.244 billion yuan YoY, -15.43% YoY, net profit of 0.235 billion yuan, +7.47% YoY; according to quarterly data, 24Q2 achieved revenue of 2.425 billion yuan, +12.74% YoY, and realized net profit of 0.156 billion yuan YoY, and realized net profit of 0.154 billion yuan YoY billion yuan, -3.72% YoY 24H1 achieved gross profit margin of 17.47%, year-on-year -2.89pct, net profit margin 6.36%, year-over-year -2.69pct; of these, 24Q2 gross profit margin 17.23%, year-on-year -1.89pct, month-on-month -0.64pct; 24Q2 net profit margin 6.58%, -3.69pct yoy, +0.56pct month-on-month.

The board business bucked the trend, and the scale of strict risk control in the engineering business shrank. Looking at the split business, the 24H1 decoration materials/custom home furnishing business achieved revenue of 3.282/0.594 billion yuan respectively, +29.01%/-11.41% year-on-year, with gross margin of 16.74%/20.71%, a year-on-year change of -3.06/-0.33pct.

Among them, revenue from decoration materials was 3.063 billion yuan, +33.40% year on year, gross margin was 10.83%, -0.42pct year; cabinet business revenue was 0.417 billion yuan, -16.18% year over year, gross margin was 22.37%, -0.42pct year on year; brand usage fee was 0.222 billion yuan, or -12.14% year on year. The whole-house customization business achieved revenue of 0.3 billion yuan, +22.04%; Qingdao Yufeng and Hantang achieved revenue of 0.134 billion yuan, or -48.63% year-on-year, with the main theme of controlling scale, reducing risk, and seeking transformation. We believe that in the context of domestic demand pressure in the home improvement industry and increased competition in the industry, the company can buck the trend and achieve an increase in revenue from decorative materials, mainly thanks to the company's strategic plan to promote multi-channel services; home improvement presents a competitive pattern of small enterprises in the big industry, and the company's product market share is still low, but with the gradual improvement of channels, superimposing the company's four differentiated base materials, business performance is expected to gradually be realized.

Multi-channel omni-directional layout, new retail brings new volume. (1) Decorative materials business: 24H1 achieved revenue of 3.282 billion yuan, of which board product revenue was 2.146 billion yuan, +41.45% year over year, board brand usage fee (including easy assembly) 0.219 billion yuan, +11.59% year over year, and other decorative materials 0.916 billion yuan, +17.71% year over year. ① Synchronization of traditional and new retail channels: 24H1 completed the investment promotion of 742 township stores and completed the construction of 421 township stores. By the end of 24H1, there were 4,322 decoration materials stores, including 1,168 township stores and 914 custom-made stores; e-commerce and new media platforms were launched, and new retail was introduced. By 24H1, more than 2,000 stores had introduced a new retail business model, and more than 500 stores had achieved high-quality new retail operations. ② Furniture factory channel: Continuously improve the cooperation strength and stickiness of furniture factories. As of 24H1, the number of cooperative furniture factory customers reached more than 20,000 (an increase of about 4,000 compared to the beginning of '23), and the growth rate is relatively fast. 3) Home improvement company channel: Strive to reach deeper strategic cooperation with the country's TOP50 leading home improvement companies, and also carry out home improvement company expansion plans in 12 core cities. 4) Tooling channel: The company establishes an independent tooling operation branch to increase team strength and attract engineering agents with strong service capabilities. (2) Whole house customization business: Achieved revenue of 0.594 billion yuan. As of the end of 24H1, there were 800 custom home furnishing specialty stores, including 340 comprehensive home furnishing stores (including 252 whole-house customization), 248 whole-house customization stores, 143 flooring stores, and 69 wooden stores.

Fee rates have improved significantly, and high dividends have fed back investors. (1) Significant results were achieved in reducing costs and increasing efficiency: 24H1's various expense ratios were 6.95%, -2.81 pct year on year. Among them, the sales/management/R&D/finance cost rates were 3.88%/2.82%/0.74%/-0.50%, respectively, -0.47/-1.69/-0.24/-0.41 pct. The decline in 24H1 company's expense ratio was mainly due to ① a reduction in equity incentive expenses; ② a year-on-year decrease in interest expenses and a year-on-year increase in interest income. Credit impairment and asset impairment increased year-on-year. The company's 24H1 credit and asset impairment losses totaled about 0.079 billion yuan, +264.11% over the same period. The main factor was the impairment of various accounts receivable from the company Qingdao Yufeng and Hantang. (2) High dividend rate feeds back investors: The company's mid-term dividend plan is to distribute a cash dividend of 2.8 yuan (tax included) for every 10 shares, with a total dividend of 0.23 billion yuan, accounting for 94.21% of the current net profit to the mother. The high dividend incentive policy highlights the company's confidence in high-quality development.

Investment advice

Considering that downstream demand recovery is lagging behind, we lowered our 2024-2025 revenue forecast to 9.767/10.718 billion yuan (originally 11.195/12.415 billion yuan), and lowered the net profit forecast to mother to 0.699/0.806 billion yuan (originally 0.776/0.922 billion yuan), corresponding to EPS of 0.84/0.97 yuan (originally 0.92/1.10 yuan), and added 2026 operating income/net profit to mothers/ EPS forecasts 11.695 billion yuan/0.954 billions/1.15 yuan respectively, corresponding to the closing price of 9.64 yuan on August 29, 11.48/9.95/8.41x PE, maintaining the “gain” rating.

Risk warning

Demand falls short of expectations, channel promotion falls short of expectations, systemic risks.