Incident Overview

Qu Mei Home Furnishing released its 2024 annual report. In 2024, H1 achieved revenue of 1.803 billion yuan, -7.40% YoY (due to a decline in sales order revenue due to poor demand in the furniture industry); net profit to mother -0.124 billion yuan, or 20.41% YoY (due to lower labor and raw material costs and lower sales expenses); net profit of non-attributable mother -0.108 billion yuan, or 13.88% YoY. Looking at a single quarter, the company achieved revenue of 0.915 billion yuan in 2024, or -6.55% year-on-year; net profit to mother was 0.045 billion yuan, or 25.25% year-on-year. In terms of cash flow, the net cash flow from 2024H1's operating activities was $0.274 billion, -24.64% year-on-year (due to a decrease in cash received from sales of goods and services provided during the current period).

Analytical judgment:

Revenue side: The home furnishing industry has a broad market, exports have become a new growth point, and challenges and opportunities coexist.

According to data from the National Bureau of Statistics, in the first half of 2024, the revenue of furniture manufacturing enterprises above the size of China was 310.18 billion yuan, and the market space was broad. In recent years, Qumei Home has continuously carried out product innovation, brand image upgrade and channel optimization, striving to seize more market share. During the reporting period, the company's revenue was 1.803 billion yuan, ranking among the top domestic furniture brands. However, sales of household products are affected by factors such as the level of the national economy, the development of the real estate industry, and the per capita disposable income of residents. Generally speaking, the cyclicality of the home furnishing industry is related to macroeconomic cyclicality and the cyclicality of real estate sales. China's furniture industry is affected by the weak real estate market, domestic demand is weak, and competition is gradually intensifying. At the same time, the furniture export business has become a new growth point, and opportunities and challenges coexist, which is expected to become a new growth engine for the company.

Profit side: Profitability continues to improve, and the cost structure continues to be adjusted during the period.

In terms of profitability, in 2024, the H1 Ekornes AS subsidiary's raw material costs as a share of revenue declined significantly year-on-year, helping the company to recover in the context of a slight decline in operating income, with a gross profit margin of 31.69% (+0.97pct) and a net profit margin of -7.10% (+1.18pct). We expect the company's gross margin and profitability to continue to improve throughout 2024. As raw material prices continue to be low, this improvement is expected to continue until 2025. In terms of the period expense ratio, the 2024H1 company's period expense ratio was 38.82%, +1.70pct. Among them, the sales expense ratio, management expense ratio, R&D expense ratio, and financial expense ratio were 20.15%, 10.65%, 1.99%, and 6.03%, respectively. The year-on-year cost ratio was -0.38pct, +1.88pct, -0.16pct, and +0.43pct, respectively.

Investment advice

From an industry perspective: In the context of marginal improvements in real estate policies and data, the home furnishing industry is expected to benefit significantly. From a corporate perspective: The overall development momentum of Ekornes's overseas subsidiaries is good, accelerating category expansion and Chinese market layout; domestic business is expected to improve with overall consumption recovery, and the company is actively accelerating innovation and transformation. Due to the instability of the current global economic environment and domestic demand still under pressure, we adjusted our profit forecast. The company's revenue for 24-26 is 4.144/4.474/4.893 billion yuan (previous value of 52.25/60.63/- billion yuan); 24-26 EPS-0.15/0.18 yuan (previous value 0.43/0.51/- yuan), corresponding to the closing price of 2.28 yuan/share on September 2, 2024, PE is -15/15/13 times, respectively. Maintain a “buy” rating.

Risk warning

1) M&A consolidation fell short of expectations; 2) Real estate sales recovery fell short of expectations; 3) Industry competition increased risks.