The company released its 2024 three-quarter report: 24Q3, the company achieved revenue of 4.893 billion yuan (-6.9% year over year; the decline is expected to narrow after excluding the influence of Chinese and Tianxi), net profit to mother 0.463 billion yuan (-19.9% year over year), net profit excluding non-return to mother of 0.438 billion yuan (-16.9% year over year), and the profit side excluding exchange effects is expected to narrow.

Domestic sales: Continued pressure, retail transformation. We expect the 24Q3 domestic sales revenue to drop by more than double digits. Among them, sofas will decline significantly, bed categories will continue to decline by double digits, the decline will subside sequentially, and customization will continue to grow positively. We judge that the 24Q3 integrated stores will continue to expand steadily, the entire customized store will continue to expand, and the channel structure will continue to be optimized. The company vigorously promotes cooperation with the “trade-in” policy, launches exclusive products to meet consumers' replacement needs to improve their home life, and at the same time improve the old product treatment system.

Export sales: Increased efficiency and steady development. We expect the 24Q3 export revenue to maintain double-digit growth, the growth rate is expected to be faster after excluding the impact of the bed, and the sofa is expected to maintain a relatively rapid growth rate. Vietnamese companies have accelerated development, production scale and operational efficiency have improved markedly. The US (mattress) factory is operating locally, and production capacity continues to rise. The company focuses on key countries and regions (North America, the United Kingdom, Australia and New Zealand, Western Europe, Japan), vigorously developing supermarket business, further increasing the share of SPO business, deepening strategic cooperation with major customers, and setting up benchmark brand stores for finished products in India, Vietnam, Thailand, etc., and actively exploring the development of its own brands.

Gross margin is under pressure in the short term, and the supply chain continues to be optimized. The gross margin of the 24Q3 company was 29.8% (-4.0pct year on year). We judge that it is mainly due to ① the impact of domestic and foreign sales structure, ② increased cost sharing due to declining revenue, and ③ appropriate market concessions. The 24Q3 sales/management/ R&D expense ratio was 14.0%/1.7%/1.5% (YoY -2.4pct/-0.4pct/+0.1pct), respectively, and the net profit margin to mother was 9.5% (-1.5pct YoY).

Cash flow is picking up, and operating capacity is stable. The 24Q3 company's net operating cash flow was 0.923 billion yuan (+0.281 billion yuan), the number of accounts receivable turnover days was 27 days (+2 days year over year), the number of accounts payable turnover days was 48 days (year-on-year - 5 days), the number of inventory turnover days was 54 days (+2 days year over year), lean supply chain & procurement management, and warehousing services have achieved remarkable results (it is expected that the coverage rate of warehousing and distribution services will reach more than 50% in 2024), and the operating capacity is expected to increase steadily.

Profit forecast and investment rating: We expect net profit to be 1.83 billion yuan, 1.96 billion yuan, and 2.14 billion yuan respectively in 2024-2026, corresponding to PE of 14.7X, 13.7X, and 12.6X, maintaining a “buy” rating.

Risk warning: Real estate recovery fell short of expectations, consumption recovery fell short of expectations, and progress on both sides fell short of expectations.