Incident Overview

Oupai Home Furnishing released its 2024 mid-year report. 2024H1 achieved operating income of 8.583 billion yuan, or -12.81%; net profit to mother of 0.99 billion yuan, or -12.61% (2024H1 company made double concessions to consumers and dealers, strategically increased investment in brands, e-commerce drainage, market training, etc., resulting in a year-on-year decline in total operating costs lower than the year-on-year decline in revenue); net profit without deduction of 0.776 billion yuan, or -27.54% year-on-year. Looking at a single quarter, 2024Q2 achieved operating income of 4.962 billion yuan, -20.91% year over year; net profit to mother 0.772 billion yuan, -21.26% year over year; net profit after deducting non-return to mother 0.634 billion yuan, or -32.72% year over year.

Analytical judgment:

Revenue side: Industry consumption pressure compounded by internal multi-dimensional transformation and transition led to a decline in revenue 2024H1. Real estate transactions continued to be sluggish. Consumers were more careful about household consumption, and the size of the consumer market in the customized home furnishing industry shrank further. At the same time, the industry's passenger flow is dusty and stratified, terminal sales channels, traffic structure and product style are rapidly changing, and offline store passenger traffic has drastically decreased. Consumer demand for one-stop decoration customization services has increased sharply, and traffic is skewed towards online and complete decoration, causing a huge impact on the traditional retail and home furnishing business. In order to adapt to the future business model of the industry, the company is also actively promoting terminal channel reform. At this stage, the company and dealers are undergoing multi-dimensional transformation and run-in from single products to large household sales models, teams, and stores. Affected by these factors, 2024H1's revenue is under pressure. By product, cabinets/wardrobes and supporting furniture products/bathroom/wooden doors/others achieved revenue of 25.57/44.19/0.503/0.497/0.425 billion yuan, respectively, -16.76%/-18.63%/+9.29%/-13.61%/+234.08%, respectively. By channel, retail distribution channel revenue fell 23% year on year, and the impact on the company's revenue was obvious; complete channel revenue increased 8.7% year over year, bulk channel revenue increased 1%, foreign trade channel revenue increased 27%; direct sales channel bucked the trend and increased 17% year on year. As of the end of the 2024 half-year period, the number of Opal brand/Opini/Bonis/other brand stores was 5644/1037/954/539/155, respectively.

Profit side: multi-dimensional cost reduction and efficiency, increase profit level

In terms of profitability, through the full implementation of measures such as multi-dimensional manufacturing cost reduction, organizational optimization, and cost control, 2024H1 achieved a steady increase in the gross profit margin and net interest rate of its main business, with a gross profit margin of 32.57% (+1.05pct) and a net profit margin of 11.57% (+0.13pct). In terms of the period expense ratio, the 2024H1 company's cost rate for the period was 22%, +3.98pct. Among them, the sales expense ratio, management expense ratio, R&D expense ratio, and financial expense ratio were 11.39%, 7.01%, 4.87%, and -1.27%, respectively, and +2.44pct, +0.41pct, and +0.56pct (an increase in exchange losses).

Investment advice

At this stage, the company is facing internal and external pressure. External pressure mainly reflects the contraction in demand for customization due to the downturn in real estate. The internal pressure comes from a painful period of transformation of the company's sales model, team, store, etc. after switching the industry's consumption model, and there may be pressure on the short-term performance side. We adjusted our previous profit forecast. We expect the company's 24-26 revenue to be 20.504/22.554/25.486 billion yuan (previous value was 25.136/27.962/30.877 billion yuan); 24-26 EPS was 4.50/5.00/5.70 yuan (previous value was 5.44/6.01/6.59 yuan), corresponding to the closing price of 44.35 yuan/share on August 30, 2024, and PE 9.85/8.87/, respectively 7.78 times. Considering the company's leading position in the customized home furnishing industry, leading the industry with channel and product strength advantages, they are optimistic about the company's restorative growth after organizational innovation, and maintain a “buy” rating.

Risk warning

1) Household demand falls short of expectations; 2) Uncertainty brought about by channel changes and increased competition; 3) Risk of a sharp rise in raw material prices.