Incident Overview

The company released its 2024 semi-annual report. In 2024, H1 achieved revenue of 0.734 billion yuan, -5.18%; net profit to mother 0.34 billion yuan, -20.73% YoY; net profit after deduction was 0.377 billion yuan, or -13.24% YoY. In terms of cash flow, the net cash flow from operating activities was 0.684 billion yuan, +93.83% over the same period last year. It is mainly due to the company's issuance and recovery of small loan loans and factoring payments as net amounts in operating activities. The net recovery amount for the current period was greater than the previous period. Looking at a single quarter, the company achieved revenue of 0.353 billion yuan in 2024, or -7.95% year on year; realized net profit of 0.153 billion yuan, or -25.00% year over year. The company plans to pay an interim dividend: 4 yuan (tax included) for every 10 shares, with an interim dividend rate of 88%, to continue to give back high dividends to shareholders.

Analytical judgment:

Revenue side: Under pressure in the current environment, it is expected that the Tianfu New Area project will advance, and H1 will achieve revenue of 0.734 billion yuan in 2024, or -5.18% compared to the same period last year. In 2024, the company achieved revenue of 0.353 billion yuan, -7.95% year-on-year, and the revenue growth rate decreased by 7.00 pcts month-on-month, mainly due to a slight decline in the company's decoration business under pressure on the demand side of the real estate chain. By business, the main rental business, marketing and advertising, contract management, and decoration achieved revenue of 0.645 billion yuan, 0.0041 billion yuan, 0.0055 billion yuan, and 0.043 billion yuan respectively, with year-on-year differences of -1.40%, +11.31%, -13.08%, and -41.95%, respectively. Under current insufficient overall demand and increased competition, they are under certain pressure.

As a large-scale decorative building materials distribution enterprise in the southwest region with strong comprehensive competitiveness, the company has been deeply involved in Chengdu for 20 years, with a high penetration rate, outstanding cost advantage of self-owned properties, and stable and long-lasting profits. According to the company's 23 annual report, the Tianfu New Area project is progressing smoothly, and the company plans and lays out industrial ecosystems such as home living, live streaming e-commerce, and headquarters economy according to the overall positioning of the “headquarters port” and “live streaming port”, which is widely linked to government and industry investment resources. With the gradual introduction of the home improvement trade-in stimulus policy led by the State Council, the recovery of second-hand housing transactions in Chengdu according to poster news, and the company's active adjustments to face the continued progress of the Tianfu New Area project, it is expected that the company's performance will gradually increase, and the future is worth watching.

Profit side: the consolidation of new projects and return on investment drag down the profit side

In terms of profitability, the company's H1 gross profit margin in 2024 was 69.47% and 47.81%, respectively, -1.2pct and -9.47pct year-on-year, respectively. Looking at a single quarter, the company's gross profit margin and net profit margin for Q2 in 2024 were 70.29% and 44.48%, respectively, -0.94pct and -9.95pct year-on-year respectively; we expect this is mainly due to increased costs and reduced investment income from the new Tianfu project under pressure on the revenue side (mainly due to changes in fair value of the company's investment business in the current period due to fluctuations in secondary market value). On the cost side, in Q2 2024, the company's fee rate for the period was 4.89%, -0.97pct year on year. Among them, the sales/management/finance expense ratios were 0.38%, 4.55%, and -0.04%, respectively, -0.24pct, -0.78pct, and +0.06pct year-on-year.

Investment advice

In the medium to long term, demand for homes will continue to be released, stimulated by the rate of urbanization, rising incomes, and increased demand for stocks. As a leading home furnishing store with a large scale and strong comprehensive competitiveness in the southwest region, the company has been deeply involved in Chengdu for 20 years. It has a high penetration rate, outstanding cost advantage of self-owned properties, and stable and long-term profits. Currently, it has a self-operated store with a construction area of more than 1.1 million square meters and more than 3,500 registered merchants. It is expected that its transaction volume and market share will continue to be at the forefront of the region. We lowered our profit forecast. We expect the company's revenue for 2024-2026 to be 1.53/1.611/1.707 billion yuan (previous value 1.595/1.712/1.854 billion yuan), EPS was 1.00/1.08/1.16 (previous value 1.11/1.19/1.31 yuan), corresponding to the closing price of 10.89 yuan/share on September 2, 2024, and PE was 11/10/9 times, respectively, maintaining the company's “buy” rating.

Risk warning

1) Real estate sales fell short of expectations, leading to weakening demand for homes. 2) Competition has intensified in the home retail market in Sichuan. 3) The company's return on investment fell short of expectations.