Key points of investment

Gujia Home Furnishing Releases 24Q3 Results

2024Q1-Q3's revenue was 13.801 billion yuan (-2.37% YoY, same below), net profit due to mother was 1.359 billion yuan (-9.49%), net profit of 1.219 billion yuan (-10.67%); of these, 24Q3 single-quarter revenue was 4.893 billion yuan (-6.94%), net profit to mother 0.463 billion yuan (-19.92%), net profit of non-return to mother was 0.438 billion yuan (-16.87%).

Revenue side: The company divested Tianxi Pai on 23.10.31, and the transfer of Mexican mattress production capacity to the US factory caused a certain drag due to anti-dumping.

Profit side: We use (financial expenses - net interest expenses) to roughly simulate exchange gains and losses. The 24Q1-Q3 value is about 0.005 billion (about -0.041 billion in the same period last year), the difference is about 0.046 billion; 24Q3 is about 0.031 billion in a single quarter (about 0.017 billion in the same period last year), and the difference is about 0.014 billion; therefore, we expect the profit side to perform better in terms of reducing exchange losses.

Domestic sales: Marketing activities have been intensified. We expect that since the beginning of the trade-in volume increase, Gujia will continue to increase marketing efforts on the domestic trade side, while effectively reducing product costs through improving the efficiency of the middle back office and supply chain. In 816, the company promoted cost-effective packages such as Huishang and Yue Shang, and released three new policy benefits, “full year warranty”, “90 day no reason to return or exchange”, and “7-day lightning delivery for some products”. This is the result of the company's domestic trade promoting warehouse distribution and retail operation reforms over the years.

At the same time, the whole company launched 698 packages to adjust prices and subsidize some products, gathering and enriching products in the 899-1099 price range.

Gold 9 Silver 10+ trade-in is expected to catalyze demand

Since August, many provinces and cities have successively issued trade-in subsidy rules. The support has been strong (for example, the subsidy for a single piece of furniture product is mostly 2,000 yuan, such as 0.02-0.03 million yuan for whole house decoration according to the contract amount, etc.), and it has already been seen that some regions have had good driving effects in October. The home trade-in subsidy is a gradual process. Good samples and positive feedback will encourage more dealers to participate, combined with the Double 11 promotion and the catalytic December 31 deadline. We determine that 24Q4 home furnishing companies' front-end orders are more likely to return. At the same time, government restrictions on participating merchants in compliance operations will also help increase the concentration of leading brands.

Export sales: lean manufacturing, overseas production capacity expansion

1) Vigorously develop the supermarket business, and achieve breakthroughs in cooperation with Costco and others (increase offline chair and bed cooperation).

2) Further increase the share of SPO business and enhance the supply chain's ability to deliver quickly.

3) Cross-border e-commerce business development has been accelerated, and a complete market insight, product planning, channel operation, user experience, and supply chain system has been established. Online retail platforms such as Amazon, Wayfair, Shopify, and Temu have been deployed in the US, and there are multiple three-party overseas warehouse layouts, covering delivery across the US.

4) Actively explore independent brands overseas and set up benchmark brand stores for finished products in India, Vietnam, Thailand, Uzbekistan, Kazakhstan and other countries.

Released a restricted stock incentive plan to strengthen the binding of middle-level interests, and set steady development goals. On September 23, the company released the 2024 restricted stock incentive plan (draft): it plans to grant a total of 9.835 million restricted shares to 84 core business lines, accounting for about 1.2% of the share capital; the grant price is 11.84 yuan/share, with a closing price of 22.6 yuan per share, with a discount rate of 52%). The performance assessment target for this restricted stock incentive is: the net profit for 2025-2027 is not less than 100%/105%/110.25% of the average net profit for 2021-2023 (1.827 billion yuan, net worth). Judging from the assessment target setting, the uncertain factors of the macro environment are combined. We believe that the core of this incentive is to strengthen the binding of middle management, and we expect the company to maintain stronger confidence in growth.

Financial indicators: Gross margin declined due to structural changes, and the cost control effect was good 1) 24Q1-Q3 gross margin was 31.88% (-0.47pct, same below), 24Q3 was 29.8% (-3.97pct), mainly due to changes in domestic and foreign trade revenue structure and increased domestic trade marketing efforts; 2) 24Q1-Q3 sales, management+R&D cost rates were 15.95%/3.99%, respectively, -0.28pct/+0.42pct, of which 24Q3 sales, management+R&D expenses rates were 13.99% /3.20, respectively %, compared to -2.45pct/-0.37pct, the Q3 fee control results were good.

Profit forecasting and valuation

With an integrated two-wing dual-core strategy, domestic trade continues to be optimistic that a number of welfare measures will drive operational improvements, functional sofas & custom & beds have high potential, advance the layout of overseas production capacity in foreign trade, and reduce operating risks. We expect to achieve revenue of 19.018/20.187/21.569 billion in 24/25/26, -1.01%/+6.15%/+6.85%, net profit to mother of 1.869/1.971/2.112 billion, -6.85%/+5.49%/+7.14% YoY. The PE corresponding to the current market value is 14.87/14.09/13.15 X, maintaining a buying rating.

Risk warning

Risk of fluctuations in consumer demand; increased competition in the industry; progress in promoting the big-store model falls short of expectations, etc.