The company released its report for the third quarter of 2024

The 24Q3 company achieved revenue of 4.89 billion yuan, -6.9%; net profit to mother of 0.46 billion yuan, -19.9%; net profit without return to mother of 0.44 billion yuan, -16.9% year on year; gross profit margin 29.8%, -4 pct year on year, net profit margin 9.5% year on year, -1.5 pct year on year.

24Q1-3 achieved revenue of 13.8 billion yuan, -2.4% year on year; net profit of 1.36 billion yuan, -9.5% year on year; net profit without return to mother of 1.22 billion yuan, -10.7% year on year; gross profit margin of 31.9%, -0.5 pct year on year, net profit margin 9.8% year on year, -0.8 pct year on year.

We expect the decline in revenue mainly due to the slow recovery in domestic sales and the divestment of Tianxi, and profits will be affected by the decline in exchange gains and losses.

Domestic trade: “Government and enterprise double subsidies” promote replacement subsidies. We expect Q3 companies to actively promote the “816 National Customer Day” campaign. On the basis of year-round insurance, they first proposed service promises such as 90-day no-reason return and exchange of soft home furnishing products, and achieving 7-day lightning delivery for major market packages and key items, which not only covered core soft furniture categories such as sofas and beds, but also extended the return and exchange period far beyond the industry average, providing consumers with a more relaxed space for trial and error and more flexible choices.

Since September, the company has responded positively to the national policy to implement trade-in subsidies. On September 9, the “trade-in season” launch ceremony was held to launch the “Save money by replacing old” policy. On the basis of preferential policies in various regions, consumers can enjoy up to 2,000 yuan in shopping allowances while starting the 3rd phase of the Huimin Renovation Project; we expect Q4 operations to improve.

Export sales: Enrich business forms, expected to increase operating profit margins

The company's foreign trade has further improved the integrated internal value chain operation mechanism to accelerate the improvement of the system operation capabilities of overseas manufacturing bases and overseas branches; in terms of channels, the company has steadily enhanced traditional retail business, vigorously developed supermarket business, further increased the share of SPO business, and actively explored the overseas mode of its own brand. Foreign trade business forms continue to be rich.

Adjust profit forecasts to maintain “buy” ratings

The company thoroughly implemented the integrated two-wing strategy and actively changed and adjusted in the downturn real estate cycle. Previously, executives increased their holdings and issued stock incentive plans (drafts), which showed business confidence. Currently, with the implementation of trade-in subsidies, we expect operations to improve. According to the 2014 three-quarter report, considering that current real estate sales and domestic demand are still sluggish, the profit forecast is estimated to be 1.85/2.05/2.3 billion yuan (previous value 2.09/2.32/2.6 billion) for 24-26, respectively, and the corresponding PE is 15X/13X/12X.

Risk warning: Real estate continues to weaken, overseas demand falls short of expectations, risk of trade friction, slow development of new channels, intensifying industry competition