Incident Overview

Fussemi released its 2024 three-quarter report. In the first three quarters of 2024, the company achieved revenue of 1.079 billion yuan, -6.81% year on year; net profit to mother 0.546 billion yuan, -11.37% year over year; net profit after deducting non-attributable net profit of 0.54 billion yuan, -10.01% year on year. On a quarterly basis, Q3 achieved operating income of 0.346 billion yuan, -10.08% year on year; net profit to mother of 0.206 billion yuan, +10.04% year over year, and net profit after deducting +1.59% year on year (mainly affected by earnings from changes in fair value).

In terms of cash flow, the net cash flow from the company's operating activities in the first three quarters of 2024 was 0.883 billion yuan, +19.81% year-on-year.

Analytical judgment:

Revenue side: It is still under pressure in the short term. It is expected to gradually improve in the first three quarters of 2024. The company achieved revenue of 1.079 billion yuan, -6.81% year over year; Q3 achieved revenue of 0.346 billion yuan in a single quarter, -10.08% year over year. In the current environment where overall demand for home improvement is sluggish, the company's performance is also under some pressure. However, we believe that the overall home economy is expected to pick up in the future: the Politburo meeting of the Central Committee at the end of September emphasized “the need to stop the decline and stabilize the real estate market”. A number of financial support measures have recently been implemented, including improving the interest rate pricing mechanism for commercial personal housing loans, reducing the minimum down payment ratio for two homes to no less than 15%, increasing the central bank's financial support ratio for affordable housing reloans, and extending the term of some real estate finance policies; on October 12, the Information Office of the State Council once again emphasized “the combined use of tools such as local government special bonds, special funds, and tax policies to support and promote “The real estate market stopped falling and stabilized,” and the housing market is expected to pick up at the bottom in the fourth quarter.

As a leading home furnishing store with a large scale and strong overall competitiveness in the southwest region, performance is expected to accelerate recovery in the face of positive expectations in the home furnishing industry. Furthermore, the company continues to promote the construction and investment promotion of the Fusenmei Tianfu project, and incremental business can be expected in the future.

Profit side: Profitability remains at a high level, with better cost control. In terms of profitability, the company's gross profit margin and net profit margin for the first three quarters of 2024 were 68.14% and 51.86% respectively, -2.02pct and -3.11pct, respectively.

Among them, the gross profit margin and net margin for the Q3 single quarter were 65.32% and 60.46%, respectively. The decline in gross margin was -3.8pct and +10.13pct, respectively. We expect the decline in gross margin to be mainly affected by revenue pressure and the consolidation of new projects. The increase in net interest rates is mainly affected by good cost control and earnings due to changes in fair value.

In terms of the period expense ratio, the company's expense ratio for the first three quarters of 2024 was 4.70%, -0.8pct year on year. Among them, the sales expense ratio, management expense ratio, and financial expense ratio were 0.34%, 4.42%, and -0.05%, respectively, -0.40pct, -0.41pct, and +0.02pct, respectively; of these, the Q3 company's period expense ratio was 4.62%, -1.19pct year on year, of which the sales expense ratio, management expense ratio, and financial expense ratio were 0.34%, 4.39%, and -0.10%, respectively- 0.96pct, -0.21pct, -0.02pct

Investment advice

In the medium to long term, demand for homes will continue to be released, stimulated by the rate of urbanization, rising incomes, and increased demand for stocks. As a leading home furnishing store with a large scale and strong comprehensive competitiveness in the southwest region, the company has been deeply involved in Chengdu for 20 years. It has a high penetration rate, outstanding cost advantage of self-owned properties, and stable and long-term profits. Currently, it has a self-operated store with a construction area of more than 1.1 million square meters and more than 3,500 registered merchants. It is expected that its transaction volume and market share will continue to be at the forefront of the region. We maintain our profit forecast. We expect that the company's revenue for 2024-2026 will be 1.53/1.611/1.707 billion yuan, EPS will be 1.00/1.08/1.16 yuan, respectively, corresponding to the closing price of 13.13 yuan/share on October 23, 2024, and PE will be 13/12/11 times, respectively, maintaining the company's “buy” rating.

Risk warning

1) Real estate sales fell short of expectations, leading to weakening demand for homes. 2) Competition has intensified in the home retail market in Sichuan. 3) The company's return on investment fell short of expectations.