Brief performance review

On October 30, the company released its 2024 three-quarter report. 2024Q1-3 achieved revenue of 7.66 billion yuan, -6.7% YoY; net profit to mother of 0.92 billion yuan, or -3.2% YoY. Among them, Q3 achieved revenue of 2.73 billion yuan, or -21.1% year on year; realized net profit of 0.36 billion yuan, or -21.2% year-on-year, after deducting non-return net profit of 0.34 billion yuan, or -21.7% year-on-year.

Management analysis

Q3 operating pressure is evident, and there are still bright spots in the overall channel: Since 24Q3, as industry demand has been further pressured, the company's operating pressure has gradually become apparent. By brand, Sophia's revenue in Q1-3 in '24 was -6.8% to 6.89 billion yuan, of which Q3 revenue fell by about 21.5%.

Under the overall pressure of industry demand, the company relied on the household strategy, with smooth sales across categories. The unit price for Q1-3 Sophia brand customers was +22.4% year over year. The revenue of the Milana brand Q1-3 was +14.7% to 0.37 billion yuan. Among them, although Q3 stores are still in the expansion period (a net increase of 26 in Q3), its Q3 revenue fell by about 15.5% year-on-year due to a significant slowdown in industry demand.

In addition, the Simi brand expects that Q1-3 revenue will still be under relative pressure. Since this year, the Simi brand has further reduced the overlap rate with Sophia brand dealers, and the store has gradually transformed the entire store, so we look forward to seeing future results. By channel, it is expected that distribution and direct sales channels will be affected by the general environment, and overall revenue is still under pressure, while the overall revenue is still under pressure. Q1-3 revenue is +26.3% year-on-year. At the end of Q3, the number of cooperative assembly companies increased by 21 to 277 compared to Q2.

Q3 gross margin declined, and net profit margin remained relatively stable: the company's gross margin in Q1-Q3 was +0.2pct to 35.8% year over year, of which Q3 gross margin was -0.9 pct year over year. It is expected that some channels will make concessions mainly due to changes in revenue structure. In terms of cost rates, Q1-Q3 sales/management/R&D expense ratios were -0.2/+0.3/+0.1pct to 9.6%/6.9%/3.7%, respectively. Among them, Q3 sales/management/R&D expense ratios were -0.6/+0.7/+0.3 pct to 8.9%/6.8%/3.5%, respectively, while the financial expense ratio was -0.4 pct to -0.2% year over year, mainly due to the optimization of the loan structure, a decrease in interest expenses and an increase in interest income from term deposits. Overall, the company's Q3 net interest rate was 13.8%, which was basically the same as the previous year.

Firmly strengthen the household strategy, clearly stratify the brand, and expect the effects of the policy to be shown: the company continues to firmly promote the “multi-brand, all-category, and omni-channel” big home development strategy, and the effects of increasing customer unit prices are gradually showing, clarifying the path for achieving steady growth in the future in the context of the industry entering stock competition. Furthermore, the company's clear brand hierarchy and strong synergy of interests in the channel dealer system have all laid a solid foundation for the company's continued growth in the future. At present, furniture consumption subsidy policies are gradually being implemented in various regions. As a leading enterprise in the industry, the company is expected to rely on its ability to respond quickly to accelerate share concentration and push the company's performance back to growth.

Profit Forecasts, Valuations, and Ratings

We expect the company's EPS to be 1.28/1.42/1.58 yuan in 24-26, and the current stock price corresponding to PE is 15/13/12 times, respectively, maintaining a “buy” rating.

Risk warning

Raw materials have risen sharply, competition in packaging channels has intensified; sub-brands are not developing well.