On October 13, the company announced that the number of A shares to be issued to specific targets is 66.3544 million shares, with an issue price of 12.81 yuan/share. The issuer is Xin Hong Investment (a wholly-owned subsidiary of the company's controlling shareholder; the actual controller is Mr. Chen Ayu). Xin Hong Investment plans to subscribe for all shares issued by the company in cash; it is expected that after the issuance is completed, the total shareholding ratio of the company's actual controller Mr. Chen Ayu and his co-actors will be 44.97%.

The total capital raised by this fixed increase is no more than 0.85 billion yuan (including capital), which is mainly used for the construction of the Xilinmen Smart Home Industrial Park project (Phase II) and supplementary working capital. The total investment is 0.76 billion yuan, including land purchase fee of 23.36 million yuan, construction investment of 0.373 billion yuan, equipment and software investment of 0.27 billion yuan, reserve fee of 32.15 million yuan, and bottom line capital of 60 million yuan.

This release will help consolidate Mr. Chen Ayu's position as the actual controller and maintain the stability of control of listed companies. At the same time, this release fully demonstrates the actual controllers' determination to support the company and their firm confidence in the company's future development. It is conducive to sending a positive signal to the market and small and medium-sized shareholders, promoting the company's long-term stable development, and boosting market confidence.

Improve production capacity layout and consolidate the foundation of intelligent manufacturing

Based on the strategic direction of “continuing to cultivate the sleep circuit”, the project will build an automated and intelligent product production line by purchasing advanced production equipment at home and abroad, which is beneficial to:

1) Increase the company's production capacity and break through production capacity bottlenecks, and consolidate the company's position in the industry: the company's capacity utilization rate for mattresses and soft bed products in 2021-2023 was over 80%, and the production and sales rate was over 95%. The project further increased the production scale of mattresses, soft beds, sofas and ancillary products to meet business expansion needs; 2) Optimize the production capacity layout, shorten the delivery cycle, and ensure supply chain network efficiency: After the project construction is completed, it will fully accept orders from 6 provinces and cities including Hunan, Guizhou, Guangdong and Guangxi. The business area covers central and southern China;

3) Enhance the supporting supply capacity of raw materials, improve product quality control, reduce costs and increase efficiency: The company will effectively improve its ability to independently supply sponges and raise the level of profit.

Maintain profit forecasts and maintain “buy” ratings

As a well-known brand in China's mattress industry, the company continues to invest more in product development and design innovation, strengthen the brand's professional image and national brand image in the field of sleep, and focus on optimizing and upgrading business quality. This fixed increase shows confidence in long-term development. Furthermore, since August, 23 provinces across the country have successively implemented the “trade-in” implementation rules for home improvement, kitchen and bathroom. We expect that the optimization of the policy implementation process and the boost in consumer confidence will lead to a gradual steady rise in household demand.

We expect the return in 24-26 to be 0.528/0.621/0.709 billion, respectively, and the corresponding PE is 13X/11X/10X, respectively, maintaining the “buy” rating.

Risk warning: The progress of distribution and fund-raising projects falls short of expectations; domestic real estate continues to weaken; online channels increase spending; new product launches fall short of expectations; production capacity construction falls short of expectations, etc.