The company released a three-quarter report: Q3 achieved revenue of 2.726 billion yuan (yoy -21.13%) and net profit of 0.357 billion yuan (yoy -21.16%). 24Q1-3 achieved revenue of 7.656 billion yuan (yoy -6.64%) and net profit of 0.922 billion yuan (yoy -3.24%) to mother. The company's revenue declined in Q3. We judge that it was mainly due to a decline in revenue from traditional retail channels due to weak terminal demand; at the same time, the company continued to show results in improving quality and efficiency, and the net sales margin for the Q3 single quarter remained stable (Q3 net interest rate of 13.78%, the same as the previous year). Looking ahead to Q4, the intensive implementation of domestic real estate & trade-in policies is expected to drive a recovery in demand and restoration of sentiment in the industrial chain. Since October, companies and dealers have actively participated in the Home Furnishing Service, and terminal retail performance is expected to continue to pick up. It is expected that Q4 operations will improve and maintain the “gain” rating.

Main brands were under slight pressure in the first three quarters. Milana continued to grow, and the overall packaging channel continued to gain strength by brand: 1) 24Q1-3 Sophia's revenue fell 6.8% to 6.89 billion yuan, of which Q3 single quarter was -21.5% to 2.447 billion yuan; 2) Milan 24Q1-3 revenue increased 14.9% to 0.367 billion yuan, of which -15.8% to 0.128 billion yuan in Q3; 3) Simi brand terminal stores gradually transformed into entire stores and closed 24Q3 had 156 dealers and 161 specialty stores; 4) The Huahe brand continued to promote the construction of new channels. As of 24Q3, there were 275 dealers and 282 specialty stores. By channel, as of 24Q3, the number of integrated channel companies was 277, covering 196 cities and regions across the country, with a revenue increase of 26.34% in the first three quarters; the bulk business channel insisted on optimizing the customer structure, and the revenue contribution of high-quality customers remained stable. At the same time, it actively expanded overseas markets, and already had 31 overseas distributors.

Gross sales margin also increased by 0.17 pct in the first three quarters. Under cost reduction and efficiency, net sales margin increased by 0.6 pct24q1-3, and gross sales margin also increased by 0.17 pct to 35.79%. Among them, Q3 gross margin also decreased by 0.90 pct to 35.86%. We judge that this was mainly due to the weakening of the effects of declining revenue scale on rigid costs and cost dilution, as well as a phased increase in terminal concessions. The cost ratio also decreased by 0.34 pct to 20.20% during the 24Q1-3 period, with the sales expense ratio falling 0.23 pct to 9.60%, mainly due to a decrease in advertising expenses and marketing expenses; the management+R&D expenses ratio also increased by 0.44 pct to 10.67%, mainly due to the weakening of the cost dilution effect of declining revenue; and the financial expense ratio also decreased by 0.54 pct to -0.08%, mainly due to the company's optimization of the loan structure, reduction in interest expenses, and an increase in interest income from term deposits. Under the combined influence, the company's 24Q1-3 net sales margin also increased 0.6 pct to 12.67%.

Profit forecasting and valuation

Based on the company's Q3 performance, considering that demand has yet to recover, we lowered our revenue forecast for each category. The net profit for 2024-2026 is 1.262/1.378/1.493 billion yuan (previous value 1.43/1.585/1.75 billion yuan), respectively, and the corresponding EPS is 1.31/1.43/1.55 yuan, respectively. Referring to the 25-year Wind of comparable companies, the average PE value was 14 times. Considering the frequent use of home trade-in policies, and the company's leading multi-brand+all-category+multi-channel layout, the company was given 18 times PE in 25 years, with a target price of 25.74 yuan (previous value of 19.24 yuan), maintaining a “gain” rating.

Risk warning: Demand falls short of expectations, real estate sales decline, and new brands and new channel expansion fall short of expectations.