Key points of investment:

The company announced the shareholder dividend return plan for the next three years (2024-2026): The company's profit distribution target for the next three years: In principle, the total cash dividend to be paid each year is not less than RMB 1.5 billion (including principal amount, the dividend amount is the amount including tax). Based on the current market value of 27.06 billion yuan (September 19), the dividend rate is not less than 5.5%.

The company attaches importance to shareholder returns, and the new dividend plan stabilizes the dividend amount. The company comprehensively considers factors such as strategic development plans, industry conditions, major capital expenditure plans, social capital costs, and the company's actual operating conditions, and makes institutional arrangements for profit distribution for the next three years on the basis of balancing shareholders' reasonable return on investment and the long-term development of the company to ensure reasonable returns to investors and ensure the continuity and stability of the dividend distribution policy. The company's dividend plan for the next three years sets a lower limit on the annual dividend amount, highlighting the dividend rate.

Firmly implement household development strategies and consolidate medium- to long-term competitiveness. In 2023, the company restructured the original category-centered business model of the Oupai brand into a city-centered business model to further match the strategic direction of large households in terms of organizational form. In 2024, the company continued to push forward the transformation and transformation of the marketing system. Household decoration and retail household revenue increased 8.7% year-on-year in the first half of 2024; retail household revenue increased steadily. As of 2024H1, the company had more than 850 effective retail stores, an increase of more than 200 over the beginning of the period.

Fully implement the reduction of dealers' operating burdens and boost confidence in terminal operations. The company focuses on the dealer business model to comprehensively reduce institutional burdens, improve the cost structure of dealer profit sheets, and boost terminal confidence. The company actively reduces the burden on terminals, optimizes assessment policies, reduces dealer operating costs, and generally abolishes the number of distribution stores, encourages dealers to consolidate and close stores with losses and no drainage capacity, drastically reducing various assessment indicators, so that dealers can integrate resources and focus on customer acquisition and household transformation under drastic changes in the industry.

Local “trade-in” rules have been introduced one after another, and demand for household stocks is expected to activate. On July 24, 2024, the National Development and Reform Commission and the Ministry of Finance issued “Certain Measures to Strengthen Support for Large-scale Equipment Renewal and Consumer Goods Trade-in” to coordinate the arrangement of ultra-long-term special treasury bond funds of around 300 billion yuan to support large-scale equipment renewal and consumer goods trade-in.

Up to now, Hubei, Qinghai, Hainan, Chongqing, Zhejiang, Yunnan, Tianjin, Liaoning, Shanghai, Jiangsu, Shenzhen, Henan, Shaanxi and other regions have successively released details of home improvement consumption trade-in. As subsidy funds are gradually put in place, demand for huge household stocks is expected to be activated. Currently, the valuation of the home furnishing industry is at the bottom, fully reflecting pessimistic expectations. Along with the continuous release of real estate and household consumption stimulus policies, it is expected to stabilize consumer demand expectations for new home homes and drive the relaying demand for existing housing refurbishment, which is expected to drive the industry's valuation repair.

The company actively adapts to market changes, breaks through traditional management inertia in the industry, makes organizational structure adjustments, promotes category integration, and fully enters the household with a multi-model of home furnishing+retail furnishing, forward-looking strategy+excellent tactical execution, actively breaking the game and seeking change. Competitiveness is still there, and growth is expected to be repaired. Maintain the company's 2024-2026 net profit forecast of 2.644/2.733/2.903 billion yuan, corresponding to year-on-year growth rates of -12.9%/+3.4%/+6.2%, respectively. The current stock price corresponds to PE 10/10/9 times, respectively. We are optimistic about the company's long-term growth, sufficient valuation safety margin, stable dividend amounts highlight the dividend rate, highlight medium- and long-term allocation values, and maintain the “buy” rating.

Risk warning: Demand for terminals is weak, and the new model is falling short of expectations.