Description of the event

The company achieved revenue/net profit/net profit minus non-net profit of 4.832/0.032/0.001 billion yuan in 2024Q1-Q3, -8%/-89%/-100% year-on-year; of these, 2024Q3 achieved revenue/net profit/deducted non-net profit of 1.744/-0.006/-0.012 billion yuan, -6% /loss/loss year-on-year.

Incident comments

Domestic sales are under pressure, but revenue declines have narrowed month-on-month. 2024Q3 achieved revenue of 1.744 billion yuan, -6% YoY. By business, it is expected that sanitary ceramics, bathroom furniture, bathtubs and bathrooms will continue to grow in 2024Q3, with faucet hardware, smart toilets, tiles and other categories falling year on year. Among them, the 2024Q3 revenue decline for smart toilets is mainly due to a continuous increase in the share of light smart products and a significant drop in average product prices, but overall sales volume will continue to grow positively. By channel, it is expected that the export & home improvement business will continue to grow in 2024Q3, while domestic retail, e-commerce, and engineering channels will decline to varying degrees.

The profit side continues to be under pressure. The gross margin of 2024Q3 was 25.3%, -4.0pcts year-on-year and -3.2pcts month-on-month. The decline in gross margin was mainly due to continued weakness in the consumer market and continued decline in the company's product prices. In terms of expenses, the cost ratio increased by 1.5 pcts during the 2024Q3 period and 2.1 pcts. Among them, the sales/management/R&D/finance ratio was -1.4/+0.9/+1.0pcts year-on-year to 8.4%/9.0%/4.8%/-0.1%. It is expected that in the future, the company will continue to optimize its product structure, accelerate new product launches and store upgrades, continue to improve its omni-channel layout, and promote increased profitability and upward brand development.

There are opportunities in the stock housing market, and the export business is expected to contribute to medium- to long-term growth. 1) I am optimistic that the company will strengthen its ability to develop the stock housing market: As the real estate market further moves towards the stock market, I am optimistic that the company will start from the three dimensions of product, channel, and service, explore opportunities for stock market development through product strategies such as single product drainage, intelligent upgrade, and full-service renewal, combined with online global promotion & offline joint promotion; 2) The medium- to long-term increase in export business is impressive: Refer to 2024H1, the company's export business also increased 178%, showing a rapid growth trend. Currently, the company's export business is estimated to be OEM, and its own brands are still in the layout stage (dealers and integrated stores in the Middle East, Southeast Asia and other regions are all being laid out). It is expected that in the future, the company will continue to explore overseas markets in the three areas of offline distribution channels, brand cooperation, and online sales, and marginal growth can be expected in the medium to long term.

I am optimistic that China National Supplements will drive the upward trend in Q4 and that refined operations will show results. The company was one of the first sanitary ware brands to participate in Guofu. Trade-in policies in various regions is expected to release demand for sanitary ware categories such as smart toilets and showers. Currently, the company's Guofu offline coverage exceeds 30%, and the coverage of online channels is higher (among them, TOC e-commerce is participating, and TOB e-commerce is gradually being covered). In the future, the company will strengthen its competitive advantage in the direction of increasing customer acquisition (improving store layout), omni-channel layout (diversification of e-commerce platforms+export starting volume), and grasping stock demand. The decline in product-side cost-effective product prices goes hand in hand with the occupation of high-end products; furthermore, this year, emphasis is placed on measures such as value chain collaboration to reduce costs and improve efficiency and strengthen management resilience. The estimated net profit for 2024/2025/2026 is 0.151/0.317/0.418 billion yuan, corresponding to PE 57/27/21X.

Risk warning

1. Real estate sales and completion fell short of expectations;

2. Competition for smart products continues to intensify;

3. The company's channel expansion fell short of expectations.