Incident: The company released its 2024 interim report. 24H1 achieved operating income of 8.58 billion yuan, or 12.8% year-on-year: net profit to mother of 0.99 billion yuan, -12.6% year-on-year. Its electricity 2402 achieved revenue of 4.96 billion yuan, -20.9% year-on-year; net profit to mother was 0.77 billion yuan, or -21.3% year-on-year.

Industry prosperity is declining, and core category regulations are expected to be accepted. By product, the company achieved revenue of 25.6/44.2/0.5/0.5/0.43 billion yuan in 24H cabinets and cabinets and supporting furniture products/bathroom/wooden doors/other businesses, respectively, of -16.8%/-18.6%/+9.3%/-13.6%/+234.1% year-on-year. Against the backdrop of weak industry conditions and internal organizational changes and adjustments, revenue from core categories declined slightly, and low-base categories such as sanitary ware still achieved slight growth.

Direct sales are growing at an impressive rate, and the distribution business is yet to be repaired. By channel, the company's 23H1 direct operation/distribution/bulk business/other business achieved revenue of 3.3/6.4/1.5/0.17 billion yuan respectively, +17.3%/17.6%/1.0%/27.1% year-on-year respectively. Among them, direct sales channels have achieved relatively rapid growth even when the market is declining. Retail distribution channel revenue fell 23% year on year, mainly due to weakening market demand and high base over the same period of 23H1. The company continued to promote the construction of effective retail stores, with a net increase of 200+ effective stores in 24H1. Compared with traditional single-category stores, retail furniture manufacturers have advantages such as high customer order value and strong customer stickiness, which is expected to drive the company's profitability and overall marketing level improvement: the overall distribution channel maintains a high double-digit growth rate, and the annual increase in responsibility is deterministic; the year-round revenue increase is deterministic; foreign trade channel revenue is +27% year-on-year.

The number of stores continues to be optimized, and we are optimistic about the long-term value of the reform. The number of 24H1 Oppa/Opani/Opani/Bonis/other brand stores was 5644/1037/954/539/155 respectively, a net increase of 204/+10/-37/+50/-58 compared to 24Q1, which was mainly affected by changes in the company's investment promotion and distribution management policies. Looking at the current juncture, the company-level order reform has completed phased self-labeling. The business model is actively shifting in the direction of large households, and the reform dividends are expected to be gradually released.

The cost rate increased year-on-year, and there is plenty of room for optimization. 24H1's gross profit margin was 32.6%, +1.1 pct year on year; management expense ratio/sales expense ratio was 7.0%/11.4%, respectively, +0.6/2.4 pct year on year. The increase in sales expenses is mainly due to the increase in the company's market investment costs due to competition in industry stock. 24H1's net profit margin was 11.5%, the same year on year; among them, the net profit margin for 24Q2 alone was 15.6%, -0.1 pct year on year.

Investment advice: The company is a leading enterprise in the home furnishing industry. The current phased organizational structure reform has borne fruit, and the household strategy is progressing steadily. We are optimistic about the company's long-term growth. Considering the downward pressure on real estate, the 24-26 profit forecast was adjusted to 2.82/3.04/3.37 billion yuan, -7%/+8%/+11% year-on-year; the closing price of 44.35 yuan on August 30 corresponds to PE 10/9/8X, respectively, maintaining the “recommended” rating.

Risk warning: the risk of large fluctuations in raw material prices, the risk of falling short of expectations in the real estate market and terminal demand, the risk of people falling short of expectations, and the risk of increased market competition.