Brief performance review

On October 27, the company released its quarterly report for the first three quarters of '24. The company's revenue/net profit/net profit after non-net profit for the first three quarters of 24 was -2.4%/-9.5%/-10.7% to 13.8/1.36/1.22 billion yuan, of which 24Q3 single quarter revenue/net profit/net non-net profit were -6.9%/-19.9%/-16.9% year-on-year to 4.89/0.46/0.44 billion yuan, respectively.

Management analysis

Export sales are expected to continue to grow, and domestic sales are under pressure in the short term: From a regional perspective, the company's export sales rely on the continuous expansion of overseas customers and the advantages of overseas production capacity. The export business Q3 is expected to continue to grow relatively well against the backdrop of a slowdown in exports in the overall furniture industry. In terms of domestic sales, according to Guojin Digital Lab statistics, the domestic home furnishing store passenger traffic index weakened further in the third quarter. It is expected that demand for terminals will be relatively weak in Q3, and the relevant trade-in subsidy policies are still not significantly reflected in Q3. Overall, the company's domestic sales business in Q3 is expected to continue to be under pressure.

Changes in the revenue structure have lowered the gross profit margin, and cost control is relatively excellent: the company's gross margin for the first three quarters of 24 was -0.5 pct year on year to 31.9%. In terms of cost ratios, the company's sales/management (including R&D) /finance expense ratios for the first three quarters of 24 were -0.3/+0.4/+0.2pct year-on-year, respectively, to 16.0%/4.0%/0.2%. The gross margin for the 24Q3 single quarter was -4.0pct year-on-year to 29.8%. It is expected that on the one hand, the share of export business with low gross margin will increase, and on the other hand, in the case of weak domestic demand, the company will take certain concessions to seize the market in Q3. In terms of cost ratios, 24Q3 sales/management (including R&D) /finance expense ratios were -2.4/-0.4/+0.1pct to 14.0%/3.2%/0.7%, respectively. Overall cost control was relatively excellent, while the financial expenses of 24Q3 were 0.035 billion yuan, which is expected to be due mainly to certain exchange losses.

Comprehensive capabilities continue to be consolidated, and the consumer subsidy policy is expected to accelerate the recovery of the company's performance: the company has clear strategic ideas and actively promotes the “one, two wings” strategy. The company's current front-end marketing process continues to optimize marketing activities for the stock market. On the back-end side, the company is focusing on increasing the coverage of “warehouse delivery services”. This initiative is expected to not only push the company to continuously lower the dealer operating threshold, support the company's further expansion of categories and channels, but also enhance the company's digital decision-making capabilities. Overall, the company's retail transformation is accelerating, and its comprehensive capabilities are continuing to be consolidated. On this basis, furniture consumption subsidies continue to be implemented in various parts of the country. The company is expected to actively seize opportunities and seize traffic with excellent retail capabilities. The company's short-term performance is expected to pick up, and excellent growth can be expected in the medium to long term.

Profit Forecasts, Valuations, and Ratings

We expect the company's EPS for 24-26 to be 2.27/2.57/2.88 yuan, respectively. The current stock price corresponds to PE of 14/13/11 times, maintaining a “buy” rating.

Risk warning

Category expansion is poor; raw material prices have risen sharply; and the RMB exchange rate has fluctuated greatly.