Easyhouse released three quarterly reports: Q3 achieved revenue of 3.132 billion yuan (yoy -6.23%), net profit of 0.129 billion yuan (yoy -54.64%), 24Q1-3 achieved revenue of 9.479 billion yuan (yoy -2.72%), and net profit of 0.732 billion yuan (yoy -36.42%). The year-on-year decline in revenue in the third and first three quarters was mainly due to pressure on demand in the downstream home furnishing industry and the decline in rental and management revenue due to the company's rent and management fee relief for merchants; profit performance in the third and first three quarters was weaker than revenue. We determined that it was mainly due to a decline in the share of rental and management revenue with high gross margin, which led to a year-on-year decline in comprehensive gross margin. Currently, with the intensive implementation of home trade-in policies across the country, demand for terminals is gradually recovering, and it is expected that Q4 revenue will be boosted. At the same time, with the clearing of the industry, the company has a competitive advantage as a leading home furnishing channel brand and maintains a “buy” rating.

The main home furnishing industry is actively changing, looking forward to demand recovery. Against the backdrop of demand under pressure from the downstream home furnishing industry, the company promoted the implementation of “sales share” and “one store, two systems” investment strategies, provided rent relief for some merchants entering the store, and effectively reduced the burden on merchants. However, it has also led to a decline in rental and management revenue, which has dragged down revenue performance since this year. In addition, the company continues to promote digital intelligence transformation. According to the announcement, in August 2023, the company's first smart home experience center, Tongzhou store, officially opened. As of 24Q3, 11 smart home experience centers had been opened nationwide, with an operating area of 44.0.03 million square meters; the company had built a “EasyHome” smart home service platform. As of 24Q3, the company had more than 300 cooperative brands connected with EasyHome, with over 0.3 million connected devices, and opened a total of 138 stores in 15 provinces and cities across the country.

The gross sales margin for the first three quarters decreased by 5.66 pcts, and the cost ratio decreased by 1.68 pct24q1-3. The gross sales margin also decreased by 5.66 pcts to 29.33%. Of these, the gross margin for the Q3 single quarter also decreased by 9.49 pcts to 21.25%. We determined that it was mainly due to the decline in the share of leasing and management revenue with high gross margin, which led to changes in the business structure. At the same time, the company strengthened cost reduction and fee control. The cost rate also decreased by 1.68 pct to 21.22% during the 24Q1-3 period, of which the sales expense ratio also decreased by 0.87 pct to 8.88%; the management+R&D expenses ratio also decreased by 0.39 pct to 4.20%; and the financial cost ratio also decreased by 0.42 pct to 8.14%. Under the combined impact, the net sales margin of 24Q1-3 fell 4.29pct to 7.77%, of which the Q3 net profit margin also fell 4.56pct to 4.06%.

Profit forecasting and valuation

Based on the company's Q3 performance, considering that downstream demand has yet to recover, we lowered our revenue forecast for leasing and management operations. We expect net profit to be 1.003/1.166/1.294 billion yuan (previous value 1.241/1.365/1.482 billion yuan) for 24-26, respectively, and 0.16/0.19/0.21 billion yuan for EPS. We switched to a 25-year valuation. Referring to the 25-year Wind, we agreed to expect the average PE value 20 times for 25 years, giving the company a 25-year target of 20 times PE, target price of 3.80 yuan (previous value of 3.20 yuan, based on 24-year EPS of 0.20 yuan and target PE 16 times based on comparable company valuation average) maintains a “buy” rating.

Risk warning: Home demand falls short of expectations, industry competition intensifies, and new business development falls short of expectations.