Core views

The company's 24Q2 revenue and net profit to mother were -20.91% and -21.26% year-on-year, mainly due to the high base and low terminal demand for the same period last year combined with internal reforms and adjustments. 24Q2 revenue of cabinets, wardrobes and supporting furniture products, bathroom and wooden doors was -25.02%, -27.25%, +8.66%, and -24.04%. The 24H1 distribution channel is clearly under pressure, direct sales and assembly channels are steady, and the retail market is progressing rapidly. By the end of June '24, the total number of Oupai Group stores was 8,329, down 387 from the end of '23, mainly because the company was transforming and upgrading its store structure. The 24H1 retail household stores have exceeded 850 homes, an increase of more than 200 since the end of 23. Looking forward to the future, the company will firmly develop the household strategy and comprehensively promote the transformation of the marketing system.

occurrences

The company released its 2024 semi-annual report: in 2024H1, the company achieved operating income of 8.583 billion yuan/ -12.81%, net profit due to mother 0.99 billion yuan/ -12.61%, net profit after deducting 0.776 billion yuan/ -27.54%, and net cash flow from operating activities of 1.25 billion yuan/ -39.85%. Basic earnings per share were 1.62 yuan/share, -12.9% YoY, and a weighted average return on net assets of 5.32% /-2.24pct.

Brief review

The company's 24Q2 revenue and profit continued to be under pressure due to sluggish terminal demand compounded by internal reforms and adjustments. The company's 2024Q2 revenue was 4.962 billion yuan/ -20.91%, mainly due to the high base and low terminal demand for the same period last year combined with internal reforms and adjustments. 24Q2 revenue of cabinets, wardrobes and supporting furniture products, bathroom, and wooden doors was -25.02%, -27.25%, +8.66%, and -24.04%/. 24Q2 net profit attributable to mother was 0.772 billion yuan/ -21.26%, net profit after deducting non-attributable net profit of 0.634 billion yuan/ -32.72%.

Channel division: 24H1 distribution channels are under obvious pressure, direct management and assembly channels are steady, and retail households are progressing rapidly. 1) Retail channel: 24H1 direct management and distribution revenue of 0.335 and 6.395 billion yuan, +17.27% and -17.58% year-on-year. Among them, 24H1 complete channel revenue increased 8.7% year over year. By the end of June '24, there were 5644, 1037, 954, 539, and 155 stores of Opal, Opal, Bonis, and other brands, respectively, totaling 8,329, down 387 from the end of '23, mainly because the company was transforming and upgrading the store format. The 24H1 retail household business has gradually been recognized by dealers. By the end of 24H1, there were more than 850 active stores, an increase of more than 200 over the end of 23. 2) Bulk channels: 24H1 bulk and other (overseas) revenue of 1.499 and 0.173 billion yuan, +0.97% and +27.16% compared with the same period last year. 24Q1 and Q2 bulk revenue were +18.8% and -10.6%, respectively, gross margins were 15.9% and 33.3%, respectively, and 24Q2 gross margin improved month-on-month.

By category: 24H1 bathroom continues to grow. 24H1 kitchen cabinets, wardrobes and accessories, bathroom and wooden doors were 25.57, 4.419, 0.503, 0.497 billion yuan, -16.76%, -18.63%, +9.29%, -13.61%, gross profit margin 29.2%, 36.7%, 25.0%, 23.8%, -1.1, +3.1, -1.4, +2.8pct.

Cost reduction and efficiency helped increase gross margin, and 24Q2 operating cash flow was impressive. 24H1 gross profit margin 32.57% /+1.06pct, 24H1 net profit margin 11.57% /+0.13pct. Among them, the gross margins of cabinets, wardrobes and accessories, bathroom, wooden doors, and other products were 29.22%, 36.67%, 24.99%, and 23.83%, year-on-year, -1.05, +3.08, -1.35, and +2.83 pct, mainly through manufacturing multi-dimensional cost reduction, organizational optimization, and cost control measures. The 24H1 sales, management, R&D, and finance expense ratios were 11.39%, 7.01%, 4.87%, and -1.27%, respectively, +2.44, +0.57, +0.41, and +0.56pct. The 24Q2 gross margin was 34.5% /+0.2pct, the net profit margin was 15.6% /-0.1pct, and the 24Q2 sales, management, and R&D expense ratios were 11.2%, 6.2%, and 3.9%, respectively, compared with +2.7, +1.0, and -0.1 pct. The increase in sales expenses was mainly due to double concessions to consumers and dealers and increased market investment. 24H1 achieved operating cash flow of 1.25 billion yuan/ -39.85%. The decline in cash flow was mainly due to weak operating cash flow in 24Q1 due to changes in the time of repayment, and 24Q2 operating cash flow of 1.701 billion yuan/ +26.9%.

Investment advice: Based on weak terminal demand and progress in the reform process, profit forecasts are lowered. Revenue for 2024-2026 is estimated to be 20.48, 21.36, 22.43 billion yuan (previous values of 24.73, 26.82, 28.96 billion yuan), up -10.1%, +4.3%, and +5.0% year on year; net profit to mother is 2.72, 2.87, 3.05 billion yuan (previous value of 3.21, 3.5, 3.8 billion yuan), up -10.4% year on year , +5.6%, +6.0%, corresponding PE is 9.7X, 9.2X, 8.7X, maintaining the “buy” rating.

Risk warning: 1) Risk of declining real estate completion and changes in market demand: The economic situation is still relatively weak. Society is already active due to active circulation, and the economy is gradually recovering due to activity, but the business environment and supply chain of domestic and foreign markets will also face uncertainty, or bring uncertainty to the achievement of production and operation goals. 2) Risk of increased market competition: The custom furniture industry where the company is located belongs to the furniture segment. As an industry leader, the company has strong advantages in design and development, brands, services, channels, etc. However, since the custom furniture industry is in a transition period from high speed to medium to high growth, and factors such as the increase in cross-border entrants to the industry, the release of production capacity from listed companies, and fragmentation of passenger flow, changes in internal and external factors have caused industry competition from a low level of competition in product prices to a complex level of competition composed of brands, networks, services, talent, management, and scale. 3) Risk of fluctuations in raw material prices: The raw materials of custom furniture products produced by the company include chipboard, MDF, functional hardware, quartz stone sheets and some outsourced electrical appliances. If the procurement price of raw materials fluctuates drastically in the future, it may have an uncertain impact on the company's profit level.