Investment summary

The leading OEM&ODM supplier of smart homes, is deeply involved in North America to accelerate its overseas expansion. Ingenuity Home specializes in smart electric sofas and electric beds. It is a “specialized” export high-tech enterprise with independent research and development and growth. The company has been deeply involved in the international market for many years and binds to major core customers such as AshleyFurniture and Priority. 2024H1 achieved revenue of 1.207 billion yuan, up 27.67% year on year; net profit to mother was 0.285 billion yuan, up 41.81% year on year. We believe that Ingenious Home is expected to achieve a 0 to 1 growth path for consumer goods overseas, mainly based on strong management team cohesion, product R&D innovation, and continuous expansion of independent brands and in-store models. As of 2024H1, the company has built 100+ in-store stores in US retailer customers' stores and continues to promote overseas independent brand building.

Driven by long-term growth: The global home furnishing market has entered a stage of steady growth, and intelligence has become the direction of development. According to Statista data, the global smart home market is expected to reach $166.9 billion in 2024, and CAGR2020-2026 is expected to be 17.54%. Looking at market segments, the global functional sofa market continues to expand. The CAGR is 7.73% in 2017-2022, and the market size is expected to reach 32.7 billion US dollars in 2023. Europe and the US are the main consumers of functional sofas. In 2022, the penetration rate of functional sofas in the US was 48.80%. We believe that the penetration rate is expected to continue to increase along with the upgrading of the demand structure.

The global scale of smart electric beds in 2022 was about 5.207 billion US dollars, and CAGR2017-2022 was 20.41%. North America is the largest consumer market for smart beds in the world, accounting for 44% in 2022, with a penetration rate of about 14%. We believe that its penetration rate is low and there is room for improvement.

Short-term export catalyst: US real estate is expected to recover, stock replenishment will restart, and China's smart home exports will improve. China is a major furniture exporter. According to customs data, the export value of China's furniture and parts in 2023 was 64.196 billion US dollars, and the CAGR 2019-2023 was 4.37%. We believe that domestic home furnishing leaders have formed stable customer relationships and vertical industrial chains through years of their own technology accumulation, and have certain advantages in overseas markets. On the other hand, US interest rate cuts are expected to bring about a recovery in US real estate sales, and we are optimistic about China's export growth prospects. Home retail in the US has experienced inventory removal in recent years. 2023Q4 has entered the inventory replenishment stage, and market demand is gradually recovering, which is beneficial to the improvement of orders from China's overseas home furnishing companies.

Competitive advantage: Compared with LAZBOY and Minhua Holdings, Ingenious Home Furnishing has strong R&D, production and marketing capabilities, combined with industrial chain integration capabilities, and similar products are cost-effective; the company's ODM, OBM (store-to-store), and independent brand businesses develop collaboratively, and have supply chain integration advantages.

“Product+supply chain” two-wheel drive, international layout opens up room for growth. 1) We attach great importance to technology research and development, and R&D investment is at the top. 2023H1 has a total of 620 domestic and foreign authorized patents and 215 patents still pending. The company continues to invest in R&D and continuously promote project research and development. R&D expenses increased from 0.067 billion yuan to 0.118 billion yuan in 2018-2023, and the CAGR reached 11.99% in 2018-2023. 2) Key links in product production are autonomous and controllable, forming an internal vertically integrated supply chain system. The company not only has production and assembly capabilities for smart electric sofas and smart electric beds, but also has complete R&D and production capabilities for core accessories. The self-control rate of core components is constantly improving, and cost control is carried out effectively. 3) Actively develop sales channels and accumulate rich customer resources. In recent years, the share of independent brands and ODM business has gradually increased. The company has established long-term and stable cooperative relationships with internationally renowned customers such as Ashley Furniture and Priority, and continues to develop new customers. The company's top five customers accounted for more than 54% of revenue in 2018-2023, and continued to develop new retailer customers. 2024H1 received 49 new customers, and the number of retail customers in the US accounted for 78.43% of the total number of furniture customers in the US.

Investment advice

As a leading domestic smart home and a high-quality enterprise in the export chain, the company has long-term stable customer resources, sufficient overseas production capacity layout, and multi-dimensional favorable factors such as the integrated layout of the supply chain, the expected increase in independent brands, and the restart of overseas stocks are expected to drive performance growth. The 2023 performance will be significantly repaired, and the overall 2024H1 performance will continue to grow. We expect revenue to reach 2.39/2.893/3.427 billion yuan in 2024-2026, up 24.37%/21.06%/18.45%, respectively; Net profit from mother achieved 0.503/0.605/0.72 billion yuan, up 23.40%/20.40%/18.90% year-on-year respectively; EPS is expected to be 3.02/3.64/4.32 yuan, corresponding PE is 17/14/12 times. First coverage, giving a “buy” rating.

Risk warning

Risk of sales of new products falling short of expectations; risk of recession in the real estate industry; risk of rising upstream raw material costs; management risk.