Revenue and profit declined in double digits in the third quarter. The company released its 2024 three-quarter report. 2024Q1-Q3 achieved revenue of 7.66 billions/ -6.6%, net profit due to mother 0.92 billion/ -3.2%, net profit of 0.87 billion/ -3.6%; 2024Q3 revenue 2.73 billion/ -21.1%, net profit due to mother 0.36 billion/ -21.2%, net profit of non-return to mother 0.34 billion/ -21.7%. The decline in Q3 company revenue was mainly due to a sharp decline in real estate completion and sales, the impact on the macroeconomic environment, and also related to the high 2023Q3 base. The company adheres to the multi-brand, all-category, and omni-channel strategy, and is expected to pick up Q4 front-end orders under the government and enterprise double supplement policy.

The Milana brand performed well in the first three quarters. Looking at 2024Q1-Q3 by brand, the Sophia brand achieved revenue of 6.89 billions/ -6.8%, 1805 dealers, 2543 specialty stores, and an average factory customer unit price of 23,679 yuan/order; the Milana brand revenue was 0.37 billion/ +14.9%, 554 dealers, 579 specialty stores, and the unit price of factory end customers was 14,731 yuan/order; there were 156 Simi brand dealers and 161 specialty stores. The overlap rate with Sophia dealers is gradually decreasing. Store transformation continues to show the effects of the overall strategy to increase customer order value; 275 Huahe brand dealers and 282 specialty stores will continue to recruit high-quality dealers, strengthen terminal empowerment, and promote the construction of new channels such as equipment, bags, and e-commerce.

Packaging channels are growing rapidly, and retail and bulk are under relative pressure. 2024Q1-Q3's total assembly channel revenue was +26.3% year-on-year, with 277 integrated assembly companies, covering 196 cities and regions across the country. In the future, the company will continue to develop and deepen cooperative equipment and accelerate the layout of all categories of products; the bulk business is mainly affected by the decline in real estate and security. The company insists on optimizing the customer structure, and also lays out overseas markets through high-end hotel projects, residential apartment projects and brand dealers. Currently, it has 31 overseas dealers, providing one-stop customized solutions for 40 overseas countries and regions. Solution; The retail business is also expected to decline due to weak macroeconomics and demand.

Gross margin declined slightly, cost control was excellent, and profitability was stable. The gross profit margin of the 2024Q3 company is 35.9% /-0.9pct. The decline in gross margin is mainly due to structural factors such as an increase in the share of export business and a decrease in the share of secured buildings. The net interest rate ratio is 13.8%/+0.02%, and the sales/management/R&D/finance expense ratios are 8.9%/6.8%/3.5%/-0.2%, respectively, -0.6pct/+0.7pct/+0.3pct/-0.4pct. The decline in sales rates is mainly due to the optimization of the loan structure and the reduction in interest expenses Interest income increased with time deposits.

Risk warning: Real estate sales fell short of expectations; industry competition deteriorated; raw material prices fluctuated.

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

The multi-brand, omni-channel, and all-category layout is deepened, and I am optimistic about the company's performance resilience under the household strategy. Taking into account the deep real estate adjustments and lowering the profit forecast, net profit for 2024-2026 is expected to be 1.27/1.41/1.65 billion (previous value 1.4/1.58/1.78 billion), +1%/11%/17% year over year, diluted EPS = 1.3/1.5/1.7 yuan, corresponding PE = 14/13/11x, maintaining the “better than the market” rating.