Incident: Oupai Home releases its report for the third quarter of 2024. 2024Q1-3 achieved operating income of 13.879 billion yuan, a year-on-year decrease of 16.21%; net profit to mother was 2.031 billion yuan, a year-on-year decrease of 12.08%; net profit after deduction was 1.763 billion yuan, a year-on-year decrease of 19.88%. 24Q3 achieved operating income of 5.296 billion yuan, a year-on-year decrease of 21.21%; net profit to mother was 1.041 billion yuan, a year-on-year decrease of 11.56%; net profit after deduction was 0.987 billion yuan, a year-on-year decrease of 12.62%.

Actively implement trade-in and firmly implement the home strategy

Demand pressure in the home customization industry continued in 2024, and the company's revenue continued to be under pressure. Since Q3, local governments have successively introduced various preferential subsidy policies for household consumption and trade-in, and demand for customization has gradually increased. The company continues to respond to government calls and actively participates in various subsidies. The terminal feedback effect is good.

By category, 24Q1-3 achieved revenue of 71.87/40.29/0.8/0.825/0.721 billion yuan for wardrobe and supporting furniture products, cabinets, bathroom, wooden doors, and others, respectively, of -18.99%/-21.99%/-1.62%/-17.10%/+80.40% year-on-year. Looking at each channel, 24Q1-3 direct-run stores/dealers/bulk business/others achieved revenue of 5.28/10.393/2.348/0.293 billion yuan respectively, +4.09%/-18.90%/-12.33%/+28.54% year-on-year respectively.

Looking at offline stores, as of 24Q1-3, Opali/Opini/Bonis/other brands opened 5504/1002/973/549/152 stores respectively. Compared with the end of 2023, there were changes of -509/-76/-28/+84/-7 stores respectively. The company's comprehensive institutional burden reduction measures were gradually implemented, reducing dealers' operating costs, and 24Q1-3 reduced the number of physical stores by 536. Furthermore, the company firmly implements the large household strategy and actively encourages the transformation of dealers to large households. As of September 30, 2024, the company has close to 930 household stores.

Reduce costs and increase efficiency, internal exploration, and increase profitability against the trend

In terms of profitability, 24Q1-3's gross margin was 35.54%, up 1.55pct year on year; 24Q3 company's gross margin was 40.36%, up 2.75pct year on year. 1) The Group's centralized procurement advantages are highlighted, and procurement costs are continuously optimized; 2) Product structure impact; 3) Dynamic optimization of manufacturing costs, improving production efficiency; informatization, fine management, and large-scale supply chain reforms are beginning to bear fruit; 4) The company continues to seek internal benefits, reducing costs and increasing efficiency in multiple dimensions through delivery reforms, equipment upgrades, and process improvements. In terms of period expenses, the 24Q1-3 company's expenses rate for the period was 19.71%, up 2.17pct year on year, and the sales/management/R&D/finance expenses ratio was 10.15%/6.66%/4.71%/-1.81%, respectively, and +1.51/+0.16/ -0.31pct, respectively. The 24Q3 company's expense ratio was 15.99%, down 0.85pct year on year, and the sales/management/R&D/finance expenses ratio was 8.14%/6.10%/4.44%/-2.69%, respectively, and -0.05/+1.11/-0.25/ -1.67pct, respectively. Under the combined influence, 24Q1-3's net interest rate was 14.66%, up 0.77pct year on year; among them, 24Q3 company's net interest rate was 19.68%, up 2.18pct year on year.

Investment advice: As a leading home furnishing brand, Oupai Home Furnishing leads the way in business model innovation and iteration capabilities. The household strategy continues to deepen, and the company's market share is expected to increase at an accelerated pace in the future.

We expect Oupai Home's 2024-2026 revenue to be 19.253, 20.55, 21.653 billion yuan, up -15.49%, 6.74%, and 5.37% year-on-year; net profit to mother will be 2.564, 2.66, and 2.825 billion yuan, up -15.53%, 3.74%, 6.19% year-on-year, corresponding PE of 16.2x, 15.6x, 14.7x, for 24 years, with a target price of 96.82 yuan to maintain the buy-A investment ratings.

Risk warning: risk of changes in market demand; increased risk of market competition; risk of fluctuations in raw material prices; risk of dealer management.