Revenue declined by double digits in the third quarter, putting pressure on profits. The company released its 2024 three-quarter report. In 2024Q1-Q3, it achieved revenue of 3.68 billion/ -6.5%, net profit due to mother 0.27 billion/ -23.8%, net profit of 0.23 billion/ -28.3%; 2024Q3 revenue 1.46 billion/ -10.1%, net profit attributable to mother 0.12 billion/ -30.9%, net profit attributable to mother 0.11 billion/ -33.0%. The decline in Q3 revenue increased due to pressure on real estate, reduced terminal passenger flow, and consumption downgrade. The decline in profit was mainly due to changes in business structure, the decline in terminal prices, and the decline in revenue scale.

Retail shows pressure in the short term, and overseas business is growing rapidly. Direct operation/distribution of the 2024Q1-Q3 company achieved revenue of 0.25/1.92 billion, respectively, -16.3%/-11.8%. Under the trend of real estate pressure, insufficient demand and consumption downgrade, the retail side pressure was high; the 2024Q1-Q3 bulk business revenue was 1.11 billion/ +1.0%, seeking progress in large-scale business changes, and actively developed products for the elderly, enterprise apartments and engineering solutions, and achieved steady growth in the first three quarters; 2024Q1-Q3 overseas revenue was 0.13 billion/+ 35.2%, driven by international B-side and C-terminal dual-core, won the bid for benchmark projects in many countries such as the US, Canada, and Qatar. The company is actively exploring retail models in Southeast Asia. Since the opening of the Bangkok specialty store in Thailand in 2022, overseas retail stores have successively landed in Cambodia, the Philippines, Myanmar, Malaysia, and Indonesia.

There was a slight increase in wooden doors in the first three quarters, and revenue from kitchen cabinets and wardrobes declined. 2024Q1-Q3 wooden door revenue was 0.24 billion/ +0.5%, an increase of 137 wooden door stores compared to the beginning of the year; the overall revenue of the 2024Q1-Q3 cabinet/custom wardrobe was 1.66 billion/1.5 billion, respectively, -5.2%/-10.2%. At the end of Q3, the company's overall kitchen cabinets, custom wardrobes, and direct-run stores decreased by 97/29/15, respectively, compared to the beginning of the year.

Gross margin has declined, and profitability has declined. The gross profit margin of the 2024Q3 company is 37.0% /-3.6pct. The decline in gross margin is mainly due to the decline in terminal prices and the high engineering business base for the same period last year; the 2024Q3 sales/management/R&D/finance expense ratios are 18.2%/5.2%/0.3%, respectively, +3.5pct/+0.2pct/-0.6pct/+0.4pct. The increase in the overall rate is related to the decline in revenue and the relative rigidity of expenses. Among them, the increase in sales rates is mainly expected to increase market investment and market service fees for the engineering business Regarding 2024Q3, the net interest rate is 8.0% /-2.4pct, and profitability is temporarily under pressure.

Risk warning: The recovery in consumption fell short of expectations; the completion of real estate sales fell short of expectations; the competitive landscape of the industry deteriorated.

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

I am optimistic about the company's growth in multiple categories, the rapid development of retail and packaging channels, and the acceleration of overseas layout. Taking into account the deep real estate adjustments and lowering the profit forecast, net profit for 2024-2026 is expected to be 0.47/0.53/0.59 billion (previous value 0.56/0.62/0.69 billion), -20%/+11%/+12% year over year, diluted EPS = 1.09/1.21/1.36 yuan, corresponding to PE = 13/12/11x, maintaining the “superior to the market” rating.