Incident: The company released its 2024 semi-annual report, and achieved revenue/net profit after deduction of 2.212/0.149/0.126 billion yuan in the first half of '24, a year-on-year decrease of 3.85%/17.05%/23.74%; 24Q2 realized revenue/net profit to mother/ net profit after deducting 1.392/0.102/0.087 billion yuan, a year-on-year decrease of 6.88%/20.54%/28.63% year-on-year.

Overseas growth is high, and the bulk is stable: By product, cabinets/closets/wooden doors achieved revenue of 0.966/0.928/0.139 billion yuan respectively in the first half of 2024, a year-on-year change of -3.73%/-5.86%/+6.88%. 24Q2 cabinets/wardrobe/ wooden doors achieved revenue of 0.65/0.545/0.094 billion yuan respectively, a year-on-year change of -5.13%/-14.04%/+4.76%. By channel, in the first half of '24, the company achieved revenue of 1.75/11.66/0.606/0.086/0.178 billion yuan, with year-on-year changes of -8.18%/-10.90%/+8.22%/+42.69%/-1.23%. Among them, 24Q2 direct-run stores/dealership/overseas/other businesses achieved revenue of 0.78/7.09/0.459/0.043/0.103 billion yuan, a year-on-year change of -25.71%/-15.93%/+7.77%/+24.32%/+19.78%. On the overseas side, the company's B-side and C-side businesses are driven by dual cores and go hand in hand, setting up overseas flagship stores and undertaking more engineering projects, achieving rapid revenue growth. On the general side, the company develops products such as senior-friendly apartments, enterprise apartments, talent apartments, and engineering solutions, and develops non-real estate businesses such as apartments, cultural tourism, and hotels, with steady income. In terms of retail, as of 24H1, the number of the company's cabinet distribution/wardrobe distribution/wooden door distribution/direct management stores was 1,798/1993/1120/20, respectively. Compared with 24Q1, the number of stores was +39/+81/+74/-5 stores, and the stores expanded steadily.

Equity incentive costs increased, and profits were slightly pressured: 24H1/24Q2 companies' gross margins were 36.69%/36.37%, respectively, a year-on-year decrease of 0.12%/0.3%. By product, the gross margin of cabinets/closet/wooden doors in the first half of '24 was 38.77%/40.86%/17.20%, respectively, a year-on-year change of -0.47/+1.83/-0.68pct.

In terms of expenses, 24H1's sales/management/R&D/finance rates were 16.86%/6.82%/5.86%/-0.10%, respectively, an increase of 1.83/1.20/0.11/0.25pct. The sales/management/R&D/finance rates during the 24Q2 period were 15.72%/5.54%/5.25%/0.14%, respectively, with a year-on-year change of +2.05/+0.85/-0.16/+0.64pct. Among them, the increase in sales expenses was mainly due to increased market competition and the year-on-year increase in the company's investment in decoration costs and market service fees; the increase in management expenses was mainly due to the year-on-year increase in share payments generated by the company's equity incentives; the increase in financial expenses was mainly due to a decrease in exchange earnings. The net profit margin for 24H1/24Q2 was 6.72%/7.29%, a year-on-year decrease of 1.07/1.25pct.

Investment advice: The company's diversification of categories continues to advance, and overseas business is gaining strength. We expect the company's net profit to be 0.573/0.623/0.672 billion yuan in 2024-2026, with a year-on-year change of -3.7%/+8.7%/+8.0%. The PE corresponding to the current stock price is 7/7/6X, respectively, maintaining the “recommended” rating.

Risk warning: Terminal sales fall short of expectations; channel development falls short of expectations; real estate market fluctuations; risk of large exchange rate fluctuations.