Revenue declined in single digits, and profits were under relative pressure due to share payments, etc. The company released its 2024 semi-annual report. 2024H1 achieved revenue of 2.21 billion/ -3.8%, net profit due to mother 0.15 billion/ -17.0%, deducting 0.126 billion/ -23.7% of non-attributable net profit; of these, 2024Q2 revenue was 1.39 billion/ -6.9%, net profit due to mother 0.1 billion/ -20.5%, net profit not attributable to mother was 0.09 billion/ -28.6%. In the first half of the year, under pressure on real estate, insufficient demand, and declining consumption, the retail side was under high pressure, and revenue declined in single digits; increased market investment and share payment fees affected profits. If stock payments were excluded, the H1 profit returned -6.2% compared to the same period.

The bulk is growing steadily, overseas is growing rapidly, and retail channels are under relative pressure. 2024H1 direct management, distribution, bulk and overseas revenue was 1.7/1.17/0.61/0.09 billion, respectively, -8.2%/-10.9%/+8.2%/+42.7%, of which Q2 revenue was 0.8/0.71/0.46/0.04 billion, -25.7%/-15.9%/+7.8%/+24.3% year-on-year. Seek progress in large-scale business, actively develop products such as apartments for the elderly, enterprise apartments, and engineering high standards to achieve steady growth; overseas, driven by international B and C dual-core drivers, won large-scale bid for benchmark projects in the US, Canada, Qatar, etc., and Southeast Asia actively explores retail models; the domestic retail marketing network covers a total of 2,000+ dealers and 4,931 stores in all categories, and expands assembly channels through cooperation with leading national or regional assembly companies, and the whole family is progressing steadily.

Door wall performance broke through, and revenue from kitchen cabinets and wardrobes declined. 2024H1 kitchen cabinets, wardrobes and wooden doors each earned 0.97/0.93/0.14 billion, -3.7%/-5.9%/+6.9%, of which Q2 revenue was 0.65/0.54/0.09 billion, -5.1%/-14.0%/+4.8% YoY. It is estimated that the decline in revenue from kitchen cabinets and closets is mainly due to real estate pressure and poor consumption. Doorwall achieved steady growth, driven by overall linkage and new stores. As of June 30, there were 1120 doorwall product stores nationwide, a net increase of 74 compared to the beginning of the year. An increase in production and sales volume and an overall reduction in R&D, supply and marketing costs are expected to gradually improve the gross margin of the doorwall.

Gross margin remained stable, and increased expenses affected profits. Q2 gross profit margin was 36.4% /-0.4pct, and the gross margin was stable due to the combined effects of product price reduction, internal cost reduction and business structure changes; Q2 sales/management/ R&D/financial expense ratios were 15.7%/5.5%/5.3%/0.1% respectively, compared to +2.0pct/+0.9pct/-0.2pct/+0.6pct. Among them, the increase in sales expenses was mainly due to an increase in advertising decoration fees and market service fees. The increase in management expenses was mainly due to an increase in share payment expenses generated by equity incentives, and interest on financial expenses Impact of income and exchange profit and loss, Q2 net interest rate 7.3% /-1.3pct.

Risk warning: The recovery in consumption fell short of expectations; the completion of real estate sales fell short of expectations; the competitive landscape of the industry deteriorated.

Investment advice: Adjust profit forecasts and maintain a “better than the market” rating.

I am optimistic about the company's growth in multiple categories, the rapid development of retail and packaging channels, and the acceleration of overseas layout. Adjusted profit forecasts, net profit for 2024-2026 is expected to be 0.56/0.62/0.69 billion (previous value 0.67/0.74/0.83 billion), -5%/+10%/+11% year-on-year, diluted EPS = 1.29/1.42/1.57 yuan, corresponding to PE = 8/7/6x, maintaining the “better than the market” rating.