Incident Overview

The company released its 2024 three-quarter report. In the first three quarters of 2024, the company achieved revenue of 13.801 billion yuan, -2.37% year on year; net profit to mother was 1.359 billion yuan, -9.49% year over year, after deducting net profit of 1.219 billion yuan. On a quarterly basis, Q3 revenue for a single quarter 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-return net profit of 0.438 billion yuan, or -16.87% year over year. In terms of cash flow, net cash flow from operating activities in the first three quarters of 2024 was 1.559 billion yuan, +9.86% year-on-year.

Analytical judgment:

Revenue side: Weak demand led to a decline in revenue. We are optimistic about demand recovery stimulated by the subsequent national supply+enterprise supplement combo, and weak demand will decline in 2024Q3. Looking ahead to 2024Q4, we think we are optimistic about the recovery on the demand side of soft home furnishings under the dual subsidies of national subsidies+enterprise supplements, and the decline or narrowing of revenue. In March of this year, the State Council issued the “Action Plan to Promote Large-scale Equipment Renewal and Consumer Goods Trade-In”, which makes comprehensive arrangements for the “two new” tasks; in July, the National Development and Reform Commission and the Ministry of Finance jointly issued “Certain Measures to Strengthen Support for Large-scale Equipment Renewal and Consumer Goods Trade-In”, which clearly arranges funds for ultra-long-term special treasury bonds of around 300 billion yuan to increase support for large-scale equipment renewal and consumer goods trade-in. This round of government subsidies (1) is very strong: subsidies are given according to 15% of the sales price of the seven types of products (the transaction price after excluding all discounts) of the home improvement subsidy. Each consumer can be subsidized once for each type of product, with no more than 2,000 yuan; (2) The subsidy categories are comprehensive: finished furniture, customized furniture, bathroom furniture, doors and windows, smart locks and other products can enjoy subsidies; (3) A wide range of participating regions covers most regions of the country. Furthermore, in addition to government subsidies, enterprises also give certain subsidies in terms of the amount of subsidies. For example, Gujia Home also provides a shopping allowance of up to 2,000 yuan on top of preferential policies in various regions. This round of subsidies has already begun to bear fruit. According to statistics from Red Star Macalline stores across the country, as of August this year, more than 0.04 million orders for home appliances and home appliances have been completed, bringing in more than 0.45 billion yuan in sales. Since the central government issued a new round of trade-in policies in August, Red Star Macalline has been fully connected to the government platform, and the “trade-in” schedule has been accelerated. The number of monthly trade-in orders alone has exceeded 0.025 million, and the sales amount has exceeded 0.3 billion yuan. As subsidies continue to advance, we are optimistic about the continued release of subsequent demand.

Profit side: The profit level declined year-on-year

2024Q3's gross profit margin and net interest rate were 29.8% and 9.65%, respectively, -3.97 pct and -1.36 pct; in terms of period expenses, 2024Q3's period expense ratio was 17.91%, -2.69pct/month-on-month -2.70pct, of which the sales/management/R&D/financial expense ratios were 13.99%/1.73%/1.47%/0.72%, respectively, -2.45pct/-0.45pct/+0.08pct/+ 0.12pct/+0.29pct (we judge that the change in financial rate is due to an increase in exchange profit and loss. According to wind data, the exchange rate of the US dollar to RMB was 7.1169 in the 2024Q3, 7.1728 in the same period last year, and RMB appreciated slightly in 2024Q3); the net interest rate fell 1.36pct to 9.65% year on year under combined use.

Investment advice

Gujia Home Furnishing is a leader in the upholstered furniture industry. It always adheres to the three directions of “user enterprise, digital enterprise, and whole house enterprise”, and continues to lead industry transformation through “software+customization” integration. At the same time, the company strengthens the integration of excellent assets and focuses on endogenous strength. We continue to be optimistic that the company will benefit from the household development strategy to promote the continuous increase in favorable national real estate policies and the increase in demand for home renovation. Considering the current weak overall demand in the industry, we lowered our previous profit forecast. The company's revenue for 2024-26 is 18.751/20.626/22.689 billion yuan (previous value was 19.788/21.767/23.944 billion yuan), net profit to mother is 1.81/2.089/2.359 billion yuan (previous value was 2.101/2.297/2.54 billion yuan), and EPS is 2.20/2.54/2.87, respectively Yuan (previous value was 2.56/2.79/3.09 yuan), corresponding to the closing price of 32.27 yuan/share on October 30, 2024, PE was 14.65/12.70/11.24 times, respectively, maintaining the “buy” rating.

Risk warning

1) Changes in the international trade environment; 2) Downstream demand falls short of expectations; 3) Risk of sharp price increases for raw materials; 4) Risk of large exchange rate fluctuations.