Incident: Gujia Home Furnishing released its 2024 three-quarter report. In the first three quarters of 2024, revenue was 13.801 billion yuan, -2.37% YoY; net profit to mother was 1.359 billion yuan, -9.49% YoY; after deducting non-net profit of 1.219 billion yuan, -10.67% YoY.

Looking at a single quarter, Q3 revenue was 4.893 billion yuan, -6.94% year over year; net profit to mother was 0.463 billion yuan, -19.92% year over year; after deducting non-net profit of 0.438 billion yuan, -16.87% year over year. Revenue performance was in line with expectations, and the decline narrowed month-on-month.

The revenue structure affected the short-term gross margin level, and overall expenses rose slightly. In terms of profitability, the company achieved a gross profit margin of 31.88% (-0.47pct.) in the first three quarters of 2024 , net profit margin 9.84% (-0.77pct.); 24Q3 gross sales margin was 29.80% (-3.97pct.) in a single quarter , net profit margin 9.45% (-1.53pct.) The decline in gross margin is mainly due to: 1) the impact of domestic and foreign sales revenue structure; 2) a decrease in total revenue and an increase in fixed cost sharing; 3) adjustments to terminal sales practices and appropriate concessions. In terms of period expenses, in the first three quarters of 2024, the company's sales, management, R&D, and financial expenses rates were 15.95%, 2.16%, 1.83%, and 0.15%, respectively, -0.28, -0.03, +0.45, and +0.21pct, respectively. Financial expenses are mainly affected by changes in exchange gains and losses.

The decline in domestic sales stabilized, and foreign trade recovered to double-digit growth. By channel, 1) Domestic sales: -9.8% year-on-year in the first half of the year. We estimate the decline in 24Q3 and Q2 is similar. 2) Export sales: +12.6% year-on-year in the first half of the year. Along with the repair of the mattress business, we estimate that foreign trade recovered to double digits in 24Q3. With the implementation of domestic renovation subsidy policies and improvements in real estate & consumption expectations, domestic trade is expected to recover steadily in Q4.

The sofa business grew in single digits, and the foreign mattress business recovered. 1) Sofas: +14.2% year-on-year in the first half of the year. We estimate the increase in the number of units in the 24Q3 sofa business, mainly driven by foreign trade. 2) Bedroom products: -19.9% year-on-year in the first half of the year. Benefiting from the restoration of foreign trade orders, we estimate that the decline in bedroom products in 24Q3 narrowed compared to Q2. 3) Customized products: +24.9% year-on-year in the first half of the year, we estimate a single-digit increase in customized products in 24Q3.

The implementation of home improvement subsidies is expected to improve demand and industry patterns, and seize opportunities for home improvement valuation. Due to factors such as subsidies requiring advance funds from dealers, we judge that big brands and big dealers benefit more, and the competitive landscape of the industry is expected to improve.

Gu Jia is committed to the transformation of domestic trade to offline “whole” operations. The software category mainly focuses on upgrading the store format for large guest restaurants and large bedrooms, and optimizing the product matrix as the main strategy; foreign trade is moving towards the direction of “multinationalization/localization value chain integration”. Currently, the valuation of the home furnishing industry is still at a low level. With the restoration of pessimistic real estate expectations and subsequent improvements in fundamentals, there is plenty of room for valuation repair in the home furnishing industry.

Investment advice: Gujia Home Furnishing is a leading domestic soft home appliance. The product, brand, and channel moat is deep. With the upgrading of the company's channel structure and the advancement of the overall strategy, the resilience of the leader is expected to be highlighted. We expect the company to achieve revenue of 19.3, 21.3, and 23.4 billion yuan in 2024-2026, with a year-on-year increase of 0%, 10%, and 10% year-on-year net profit of 1.89, 2.13, and 2.38 billion yuan, respectively, -6%, +13%, and +12%, respectively (changes in revenue structure, adjusted profit forecasts. The previous forecast values for 2024-2026 are 2.076, 2.347, 2.63 billion yuan), and EPS is 2.30, 2.59, and 2.9 billion yuan , maintaining a “buy” rating

Risk warning: Market competition increases risk, dealer management risk, raw material price fluctuation risk, channel expansion falls short of expectations