The company released its 24-year report

24H1's revenue was 2.212 billion yuan, -3.9% YoY, net profit to mother 0.149 billion yuan, -17.0% YoY, after deducting non-attributable net profit of 0.126 billion yuan, -23.7% YoY;

24Q2's revenue was 1.392 billion yuan, -6.88% YoY, net profit to mother 0.102 billion yuan, -20.54% YoY, net profit not attributable to mother 0.09 billion yuan, or -28.63% YoY.

In the first half of 2024, the domestic economy was under multiple pressures, effective demand was insufficient, and consumption downgraded; furthermore, sales of newly built commercial housing continued to be low and consolidated across the country. Although the overall performance of the second-hand housing market was better than that of new homes, prices fell sharply, stock competition was reshuffled, and market confidence needed to be restored, putting pressure on the company's overall operations.

The company actively adapts to the development trend of the entire integrated industry, and provides consumers with overall space solutions and implementation of “decorate one home” through measures such as reaching customers through omnichannel, creating high-value, efficient products and ultimate scene experiences, and optimizing professional full-case design.

Diversified product development, breakthroughs in doorwall performance

By category, 24H1 custom wardrobe revenue was 0.93 billion, year-on-year, -5.9% gross profit margin, +1.8pct wooden door revenue 0.14 billion, year-on-year +6.9%, gross profit margin 17.2%, year-on-year -0.7pct; overall cabinet 0.97 billion, year-on-year, -3.7%, gross profit margin 38.8%, year-on-year -0.5pct; other revenue 0.18 billion, year-on-year, -1.2%, gross profit margin 18.9%, year-on-year -5.9pct.

Looking at the distribution stores, there were 1798/1993/1120 overall kitchen cabinets/custom closets/wooden doors at the end of 24H1, respectively, compared to 83/143/137 at the beginning of the year. Driven by the integration of the entire family and the addition of new stores, the importance of the doorwall business in terminal transactions is highlighted, and gross margin continues to improve, which is one of the important support points for the implementation of the company's overall strategy in the future.

Distribution transformation, stable bulk, beautiful overseas

By channel, 24H1 direct store revenue 0.17 billion, year-on-year -8.2%, gross profit margin +0.11pct; dealership revenue 1.17 billion, year-on-year -10.9%, gross profit margin 36.0%, year-on-year -0.3 pct; bulk revenue 0.61 billion, +8.2% year-on-year, gross profit margin 35.5%, year-on-year +2.2pct; overseas revenue 86.476 million, +42.7% year-on-year, gross profit margin 25.2%, year-on-year + 10.8pct

1) Retail: The company lays out multi-level markets through an omni-channel and multi-category strategy. We believe that short-term revenue declines and fluctuations in the number of stores are mainly affected by factors such as insufficient effective domestic demand and consumption downgrade. Currently, the company has established a digital marketing system to create a self-media communication matrix to open up a “second battleground” for marketing, and accumulate comprehensive cooperation experience in a timely manner to prepare for the next round of whole-family model competition. 2) Large scale: The company actively develops products such as senior-friendly apartments, enterprise apartments, talent apartments, and engineering high standards, and the overall business performance is steady. 3) Overseas: Driven by the dual core of international B-side and C-side business, the company began a new journey into the global market. It has continuously improved the level of overseas order service through high-quality engineering projects in many markets, and laid out retail business in Southeast Asia. Overseas business achieved high growth in the first half of the year.

Increase investment to cope with competition, and continue to improve operating efficiency

24Q2 gross profit margin was 36.4%, year-on-year -0.4 pct, sales/management/R&D/finance expense ratios were 15.7%/5.5%/5.3%/0.1%, respectively, +2.1pct/+0.9pct/-0.2pct/+0.6pct, net profit margin 7.29%, year-on-year -1.26pct.

The increase in management expenses was mainly due to the year-on-year increase in share payments generated by the company's equity incentives. The increase in sales expenses was mainly due to increased market competition, and the company's investment in advertising decoration expenses and market service fees increased year-on-year.

Currently, the company focuses on improving manufacturing capacity, deepening supply chain transformation, improving delivery quality, and continuously reducing costs and efficiency. It is actively exploring an integrated dry warehouse distribution model to effectively increase delivery rates and reduce overall costs. We expect profitability to improve.

Adjust profit forecasts to maintain “buy” ratings

According to the mid-year report, considering that current domestic demand is still weak and real estate data is still sluggish, we adjusted the profit forecast. The company's net profit to mother for 24-26 is 0.57/0.62/0.68 billion yuan (previous value was 0.67/0.75/0.84 billion yuan), respectively, and the corresponding PE is 7.3/6.7/6.0X, respectively.

Risk warning: Real estate sales continue to be sluggish, domestic demand continues to weaken, industry competition intensifies, household growth falls short of expectations, etc.