Key points of investment:

A new incentive draft was released to assess profits, and an American department executive became the new chairman

On September 23, ① The company announced the 2024 restricted stock incentive plan (draft), which was awarded to 84 core employees. The number of restricted shares accounted for 1.2% of the total share capital on the announcement date. The granting price was 11.84 yuan per share. The performance conditions for lifting the sales restrictions were: based on excluding impairment of goodwill and excluding share payments from the company's main incentive plan affecting net profit. The net profit for 25-27 compared with the average net profit for the three years 21-23 was not less than 100%, 105%, and 110.25%, respectively. ② The company also issued an announcement on the election of the 5th new chairman. The former chairman, Mr. Gu Jiangsheng, resigned, elected director Mr. Kuang Guangxiong as the chairman of the company, and served as the chairman of the board strategy committee. Mr. Kwong Kwong has served as vice president of Yingfeng Group and financial director of Midea. This incentive plan helps to fully gather talents, combine the interests of shareholders, the company, and the core team to ensure rapid and stable development. And this personnel change will also help the controlling shareholder Yingfeng Group achieve better collaboration with the company.

Domestic trade channel category integration, balanced development of both wings

1H24's revenue was +0.3% year over year, and domestic trade was affected by weak industry sentiment and the divestment of the company's Tianxi faction -9.8% year-on-year. 1) On the category side, the company takes the “one, two wings” strategy as the overall guiding principle, that is, balanced development of software category operation innovation and integrated overall strategy. On the one hand, a custom home marketing center was set up, and on the other hand, a new Lehuo Distribution Management Department and a shopping center management department were set up to focus on developing high-potential categories and high-potential channels. 2) On the channel side, upgrade the 1+N+X channel and store format matrix. In addition to actively arranging multiple stores and integrating large stores, the company also uses “Gujia Star Selection” to expand the development of complete packaging channels. 1H24 customization and the whole family achieved good growth. The expansion of the entire customized store maintained medium- to high-speed growth, and the opening of integrated stores further accelerated, accounting for more than 35% of total package sales in integrated stores.

Comprehensive layout of foreign trade and overseas production capacity, unleashing Vietnam's efficiency

1H24's foreign trade continued the 2H23 positive trend of +12.6% year-on-year. In 2023, the Vietnamese base doubled profits, and production scale and operational efficiency improved significantly; the Mexican company successfully relocated to a self-built factory, and the operating capacity was steadily improved; the US (mattress) company officially put into operation, starting a new journey of localized operation; and the multinational marketing branches were close to the local market to achieve intensive farming.

Profit forecasting and investment advice

We expect the company's 2024-2026 net profit to be 1.99 billion yuan 2.11 billion yuan and 2.25 billion yuan, respectively, compared to -1.1%, +6.3%, and +6.4%, respectively. The current stock price corresponds to the 24-year PE of 13X, which is similar to the average value of comparable companies. Currently, the company's valuation PE (TTM) is in the 3.6% fraction since listing. Considering that the company is a leader in software furniture, it actively promotes the integration of categories and channels to open up space for sustainable development; equity incentive assessments focus on profit and gather the confidence of key players; if real estate and consumer sentiment are repaired, the company's valuation has room for improvement. The first coverage gives a “buy” rating.

Risk warning: macroeconomic and market fluctuations, increased market competition, raw materials and exchange rate fluctuations