Matters:

The company announced its 2024 three-quarter report. In the first three quarters, the company achieved revenue/net profit after deduction of 1.44/0.09/0.06 billion yuan, YoY -11.2%/-48.9%/-51.1%; 24Q3 achieved revenue/net profit to mother/net profit of 0.52/0.05/0.03 billion yuan, YoY -20.4%/-50.8%/-52.8%.

Commentary:

Channel adjustments are progressing steadily, and cabinet business revenue continues to grow. Looking at channels, in 24Q3, the company's direct management/distribution/bulk channels achieved revenue of 0.017/0.403/0.079 billion yuan respectively, compared to -3.6%/-28.4%/+71.1%, with distribution/direct sales channels net opening of -48/-2 to 1,700/11 stores respectively; however, the bulk channel maintained high growth. We speculate that this is mainly due to the company's insistence on central enterprises as the core, complemented by high-quality private enterprises, to continue to develop customers. By product, in 24Q3, the company's overall closet/cabinet/finished product/wooden door achieved revenue of 3.71/0.085/0.018/0.025 billion yuan, which was -23.8%/+2.8%/-41.5%/-0.5% compared with the same period last year. The cabinet business bucked the trend or was mainly driven by integration/bulk business growth (the assembly business increased by more than 60% year-on-year in the third quarter).

Profitability was under pressure, and the expense ratio increased year-on-year during the period. In 24Q3, the company achieved a gross profit margin of 34.0%, -3.3 pcts/ -2.4 pcts month-on-month. On the expense side, the company achieved a sales/management/ finance expense ratio of 12.8%/7.5%/1.8%. Compared with +1.1/+2.7/+0.5pcts, the increase in the management expense ratio or the impact of amortization of incentive expenses during the period (after excluding amortization expenses of employee stock ownership plans, net profit not attributable to mother in the first three quarters was -9.81% year-on-year ratio). Taken together, the company achieved a net profit margin of 8.9% /-5.5 pcts in the third quarter of a single quarter.

Investment advice: The company actively promotes channel transformation, optimizes the store system, and accelerates the expansion of bulk/complete channels.

The 24Q3 revenue side is under pressure or is mainly dragged down by the weakness of the home retail market. As the driving effect of the trade-in policy is gradually reflected on the demand side, the company's performance is expected to usher in a positive recovery. We expect the company to achieve net profit of 0.149/0.174/0.196 billion yuan in 24-26, corresponding PE of 18/15/14X. Referring to the relative valuation method, the company will be given 19 times PE in 2025, corresponding to a target price of 10.63 yuan/share, maintaining a “strong push” rating.

Risk warning: Demand recovery fell short of expectations, real estate sales declined, and channel expansion fell short of expectations.