Description of the event

The company achieved revenue/net profit/net profit to mother of 7.656/0.922/0.874 billion yuan in the first three quarters of 2024, a decrease of 7%/3%/4%; of these, 2024Q3 corresponded to 2.726/0.357/0.343 billion yuan, respectively, a decrease of 21%/21%/22%.

Incident comments

Q3 The overall package is still resilient, and traditional retail and bulk are under pressure. Q3 revenue fell 21%, including:

1) Channel division: The overall package increased by 7%, showing relative resilience; traditional retail and bulk declines are estimated to be in the 25%-30% range, which are related to the weak economy of the industry and the decline in housing deliveries, respectively.

2) By brand: Sophia brand -22% year over year. Among them, clothing in retail channels continued to increase, and customer unit prices remained flat compared to Q2; Milana brand was -16% year over year, with store adjustments having a certain impact.

The integration of categories supported the year-on-year increase in customer orders. In the first three quarters of this year, the Sophia brand factory customer order value reached 23,679 yuan, which was basically the same as H1. The year-on-year increase was mainly contributed by categories such as kitchen cabinets and wooden doors (the H1 kitchen cabinet, accessories, and wooden door business continued to increase 27%/18% due to the contraction of Simi and Huahe); in the first three quarters, the Milan brand factory customer order value reached 14,731 yuan (H1 was 14,283 yuan).

Q3 Earnings were generally stable. Q3 gross margin fell slightly by 0.9 pct. Among them, the decline in revenue affected the amortization effect. The year-on-year increase in export business with lower gross margin affected overall profits, and there were certain structural adjustments in engineering projects, but the company's continued cost reduction and efficiency improvements achieved a certain degree of hedging. Q3 Sales/management/R&D/finance cost rates were -0.6/+0.7/+0.3/-0.4pct, respectively. Q3 attribution/deduction of non-net interest rate decreased slightly by 0.004/0.1pct.

Q3 The company continues its efforts to optimize the store structure. There was a net change in the number of Sofia/Simi/Huahe/Milana brand stores during the Q3 period - 9/-10/+1/+26 to 2543/161/282/579. Although there was a net increase in Milana brand stores, some relatively inefficient stores were guided and optimized in the early stages, strengthening the operational resilience of existing stores as the core.

Under the overall strategy, Sophia Retail is the core. Milana & Integrated Packaging has growth potential, and the expansion of ancillary products & customer orders increase their flexibility. 1) Sophia Retail still has a lot of room for product expansion and customer order growth; 2) Integrated packaging is expected to have a better growth trend, and the deepening cooperation with manufacturers and the gradual introduction of kitchen cabinet categories is the driving force for growth; 3) Milana and the like complement the good brand matrix, and there is still plenty of room for growth; 4) Simi & Huahe will start again after adjustment, and the whole strategy will be empowered; 5) With the optimization of the engineering business structure as the main line, export business is expected to increase rapidly.

Domestic subsidies for home furnishings are being actively promoted, and a boost in demand and an increase in company share can be expected. On the one hand, the company's distributors have responded positively to local government subsidies. Among them, regions with a good policy base have shown results. On the other hand, the company recently reached a nationwide subsidy cooperation with the Guangzhou government. Recently, the results are being quickly realized, and the company is also negotiating cooperation with more regional governments. The company actively grasps the cutting-edge national supplement model of continuous innovation. The national supplement method can break through offline restrictions due to differences in dealer coverage/policy environment, etc., push the national supplement effectiveness process to exceed expectations and strengthen next year's volume expectations, and the leaders can double benefit in this round with resources/qualifications.

The estimated net profit for 2024-2025 is approximately 1.23/1.31 billion yuan, corresponding to PE 15/14x. This year, if calculated based on last year's dividend ratio (75%), it corresponds to the current dividend rate of 4.9%, maintaining a “buy” rating.

Risk warning

1. Real estate performance fell short of expectations; 2. The results of the Home Furnishing National Supplement fell short of expectations; 3. The company's channel expansion and operation fell short of expectations.