The company released its 2024 semi-annual report: 24H1 achieved revenue of 1.52 billion yuan (+0.9% YoY), net profit to mother of 0.069 billion yuan (-9.1% YoY), revenue of 0.879 billion yuan (YoY -5.6%) in a single Q2, and a net profit of 0.033 billion yuan (-24.4% YoY). Affected by the phased pressure on the real estate industry, Q2 revenue performance was under pressure. Profits were pressured due to a slight decline in gross margin due to changes in revenue structure and an increase in cost-based interest expenses generated after the gradual consolidation of convertible bond issuance and investment projects in 2023.

Retail strategies have been deepened, and bulk & package growth has increased.

Retail: 24H1 revenue of 0.692 billion yuan (-15.0% YoY), gross margin of 31.6% (YoY -3.9 pct), single Q2 revenue -19.5% YoY, gross profit margin 28.2% (YoY -6.6pct), Q2 revenue and profitability were further pressured against Q1. By the end of 24Q2, the number of kitchenware/closet/wooden doors/balcony bathroom/Maneo stores was 1664/1141/667/96/163 (compared to -38/-22/ -14/+6/+12 at the end of 24Q1). The company further deepened the 140 big retail strategy (store+online marketing/home improvement/packaging/local reform+assembly) to promote the multi-channel layout of multiple merchants in one city, deepening the ability to obtain fragmented traffic and multi-channel traffic. The 24H1 home improvement business is about +45% compared to the 24H1 home improvement business.

Major: 24H1 revenue of 0.6 billion yuan (YoY +15.1%), gross margin of 15.8% (YoY +2.2pct), single Q2 revenue of 0.366 billion yuan (YoY +9.7%), gross margin of 18.5% (YoY +2.7pct). The company continues to sign strategic cooperation with high-quality real estate, deep-cultivate stocks, release new volumes, and bring categories such as wooden doors and kitchen appliances into hardcover. The 24H1 growth rate is impressive.

Overseas: 24H1 revenue of 0.166 billion yuan (+33.8% year over year), gross margin of 28.5% (YoY +0.3 pct), single Q2 revenue 0.085 billion yuan (YoY +11.8%), gross profit margin 27.1% (YoY +1.1 pct), increasing market expansion in North America, Australia, etc., and plans to invest in manufacturing bases in Thailand. In the future, a satellite factory will be set up in the regional market with the Thai manufacturing base as the core to establish an integrated cycle of production and marketing in the local supply chain and overseas markets.

Assembly: The company continues to deepen cooperation with leading home improvement companies, while developing luggage channels. As of 24H1, there were 178 finished stores (+20 at the end of 24Q1), and the assembly business continued to grow at a high rate.

Coordination and deepening of the wood category for kitchen cabinets have deepened, and the Q2 growth rate of wooden doors is impressive. 24H1 kitchen cabinet/closet/wooden door achieved revenue of 0.947 billion yuan/0.418 billion yuan/0.921 billion yuan respectively (YoY +0.1%/-0.7%/+3.0%), with gross margins of 25.3%/28.0%/3.9% (year-on-year -3.6pct/+0.2pct/basically flat); single Q2 kitchen cabinet/closet/wooden door revenue was -4.6%/-13.2%/+11.9%, respectively, with gross margins of 24.8%/27.8% /2.6% (year-on-year -4.5pct/basic flat/-0.5pct), short-term pressure on profitability. The company continues to deepen the household strategy, promote diversification of categories horizontally, and deepen the synergy effect of the cabinet wood category; in addition, it has initially determined the dual model of developing the stock dealer's administrative reform capacity+development bureau reform business partners, and further exploring new business formats such as community stores on this basis. The 24H1 reform business results are remarkable. In terms of products, 24 years of high-end customized solid wood core panels and multi-layer board cabinets further enriched the product line, and released large single luxury car paint products to enhance market competitiveness and user experience in all aspects.

The profit level has declined slightly, and the long-term pivot is expected to rise. 24Q2's gross margin was 25.7% (-2.0pct), net profit margin 3.8% (YoY -0.9%), and sales/management/R&D expense ratios were 10.6%/5.8%/6.3% (YoY -2.0pct/+1.0pct/+0.6pct), respectively. In order to improve product competitiveness and increase cost investment, 24H1's cost ratio has increased, but with the company's cost reduction and efficiency results showing, profitability has remained steady, moderate, and upward.

Stable cash flow & operating capacity. The 24Q2 company's net operating cash flow was 0.235 billion yuan (-0.205 billion yuan year on year). In terms of operating capacity, the company's inventory/receivables/accounts payable turnover days as of the end of 24Q2 was 85/22/105 days (-4/+4/-4 days, respectively), and the operating capacity was steady.

Profit forecast and investment rating: Considering continued weakness in real estate and consumer demand, we lowered net profit to mother in 2024-2026 to 0.29/0.32/0.36 billion yuan. The corresponding PE was 8.7X/7.7X/6.8X, respectively, maintaining the “buy” rating.

Risk warning: Risks that offline consumption recovery falls short of expectations, real estate falls short of expectations, industry competition intensifies, and overseas expansion falls short of expectations.