Description of the event

The company disclosed the three-quarter report: In the first three quarters of 2024, the company achieved operating income of 4.576 billion yuan, a year-on-year increase of 3.27%, achieved net profit of 0.404 billion yuan, a year-on-year increase of 12.28%, and realized net profit deducted from non-return to mother of 0.387 billion yuan, an increase of 12.00%; among them, 2024Q3 achieved operating income of 1.475 billion yuan, a year-on-year decrease of 4.94%, and achieved net profit to mother of 0.104 billion yuan, a year-on-year increase 5.68%, achieving net profit not attributable to mother of 0.095 billion yuan, a year-on-year decrease of 5.26%.

Incident comments

Weak demand in the industry led to a decline in revenue scale, and a decline in gross margin led to a slight decline in operating profit margins. The company's revenue increased 3.27% year on year in the first three quarters of 2024. Among them, Q1/Q2/Q3 was +15.6%/+2.07%/-4.94%, respectively. Prior to the year-on-year decline in Q3 revenue scale or the implementation of the trade-in policy for mainly home appliances, domestic sales demand was weak in July-August.

On this basis, in the first three quarters of 2024, the company's gross margin decreased by 1.29 percentage points year on year, or mainly due to domestic and foreign sales restructuring. The sales expense ratio increased 0.17 percentage points year on year, the management fee ratio decreased 0.46 percentage points year on year, and the R&D expense ratio increased 0.34 percentage points year on year. Combined, the company's operating profit (revenue - costs - taxes and additional - sales & management & R&D expenses + credit & asset impairment losses) for the first three quarters of 2024 was 0.328 billion yuan, up 3.19% year on year. The profit margin was 7.16%, which was basically the same; among them, 2024Q3's gross margin decreased 2.5 percentage points year on year, or mainly the price trend of bulk raw materials was strong. The sales expenses ratio increased 0.4 percentage points year on year, management expenses decreased 0.4 percentage points year on year, and R&D expenses increased 1.19 percentage points year on year. Combined, the 2024Q3 operating profit was 0.075 billion yuan, down 12.37% year on year. The corresponding operating margin was 5.07%, down 0.43 percentage points year on year. In addition, net cash flow from the company's operating activities fell 49.79% year on year in the first three quarters of 2024, of which Q3 fell 59.11% year on year. This is mainly due to the increase in payment payments made by the company during the reporting period compared to the same period last year and the increase in cost investment.

The company continues to expand its product line, strengthen brand marketing to improve sales conversion rates, and improve the channel system to effectively extend the market. The company maintains investment in R&D innovation, actively promotes product technology updates and iterations, focuses on market trends, accurately explores user pain points, and gradually increases the proportion of high-end products; the company actively innovates and strengthens marketing methods, making full use of emerging marketing channels such as Douyin, Kuaishou, Xiaohongshu, etc. to accurately anchor brand target customers, increase traffic conversion rate, and expand online sales growth space. At the same time, we continue to promote the construction of new retail channel layouts, continuously increase the entry rate of new retail platforms such as JD specialty stores, Suning Retail Cloud, and Wuxingwanzhentong, expand the market share of third- and fourth-tier cities, and accelerate the product upgrade and iteration process in response to the marketing characteristics of new retail channels, enrich channel product categories, promote continuous optimization of channel product structures; and strictly control engineering business risks in a regular manner, build and improve the business risk management standard system, strictly abide by the evaluation and credit system, focus on the speed of return of accounts receivable, and improve the efficiency of inventory funds.

Investment suggestions: The company has three independent brands, Vantage, and Vantage Home Furnishing, which forms a multi-level and cross-sector brand matrix, comprehensively and effectively covers product fields such as kitchen and bathroom categories, smart home customization, etc., and thoroughly covers all tier cities to accurately meet the brand needs of different customers. On this basis, the company actively promotes new product innovation and category expansion, and is expected to continue to grow in scale. The company's net profit from 2024-2026 is estimated to be 548, 6.17, and 690 million yuan, corresponding to PE of 12.9, 11.5, and 10.3 times, maintaining a “buy” rating.

Risk warning

1. Risk of business fluctuations due to macroeconomic and real estate market conditions; 2. Risk of changes in market share and profit due to increased market competition.