Revenue declined in single digits in the third quarter, domestic trade was under pressure, and foreign trade continued to grow. 2024Q1-Q3 achieved revenue of 13.8 billion/ -2.4%, net profit attributable to mother of 1.36 billion/ -9.5%, after deducting non-attributable net profit of 1.22 billion/ -10.7%. 2024Q3 achieved revenue of 4.89 billion/ -6.9%, net profit due to mother of 0.46 billion/ -19.9%, net profit not attributable to mother 0.44 billion/ -16.9%. Among them, domestic trade was under relative pressure due to declining real estate, weak demand, and divestment from Tianxi. Foreign trade continued to grow overall despite being dragged down by external services. It is expected that the company's Q3 revenue declined by a small single digit after excluding the influence of China and Tianxipai; the decline in Q3 profit was mainly due to changes in foreign exchange and loss, domestic and foreign trade structure changes, and terminals Effects such as promotions and concessions.

Q3 Gross margin declined slightly, and rates were optimized. The 2024Q1-Q3 company's gross profit margin was 31.9% /-0.5pct, and the sales/management/ R&D/ finance expense ratios were 15.9%/2.2%/1.8%/0.1%, respectively, -0.3pct/-0.03pct/+0.2pct, net profit margin 9.8% /-0.8pct; 2024Q3 gross margin was 29.8% /-4.0pct. The decline in gross margin was mainly due to the increase in the share of foreign trade business with low gross margin and terminal concessions. The rate rate during the Q3 period was -2.7 pct year over year It reached 17.9%, of which the sales/management/R&D/finance rate was -2.4 pct/-0.4 pct/+0.1 pct. The decrease in sales rates was mainly due to the company's accurate investment in marketing expenses. At the same time, the increase in exchange profit and loss led to a year-on-year increase in financial rates. The Q3 net interest rate was 9.7% /-1.4pct, and profitability declined slightly.

Trade-in is being implemented at an accelerated pace. It is expected that the subsidy policy will stimulate the release of demand, and domestic trade is expected to improve in Q4. On July 4, the department issued “Certain Measures to Strengthen Support for Large-scale Equipment Updates and Consumer Goods Trade-In”, which co-ordinates the arrangement of 150 billion yuan of ultra-long-term special treasury bond funds to support trade-in of consumer goods. Since the end of September, the National Insurance Company for home improvement, kitchen and bathroom has been implemented at an accelerated pace in key cities, and front-end order data for home furnishing companies has generally improved markedly. At the same time, on the basis of national subsidies, the company also introduced corporate subsidies to benefit consumers. The “trade-in season” was launched in September to promote customer trade-in activities for the first time. Replacement consumption subsidy. With the promotion of “government+enterprise” double subsidies, it is expected to boost household consumption in Q4 and drive a recovery in domestic trade orders.

Risk warning: Policy effects fall short of expectations, consumption recovery falls short of expectations; completion of real estate sales falls short of expectations; and the competitive landscape of the industry deteriorates.

Investment advice: Lower profit forecasts and maintain the “better than the market” rating.

I am optimistic about the steady growth of leading software furniture companies, domestic and foreign trade transformation and transformation, category expansion, and efficiency gains. With the accelerated implementation of trade-in government and enterprise subsidies, Q4 domestic trade orders are expected to improve, and profit forecasts are adjusted. Net profit for 2024-2026 is expected to be 1.85/2.09/2.3 billion (previous value 2.03/2.23/2.47 billion), -8%/+13%/+10% year-on-year, diluted EPS = 2.3/2.5/2.8 yuan, corresponding to PE = 15/13/12x, maintaining the “superior to the market” rating.