The company's profitability has improved. 2024Q1-3 achieved operating income of 13.88 billion yuan, -16.2% YoY; net profit to mother of 2.03 billion yuan, -12.1% YoY; deducted non-net profit of 1.76 billion yuan, or -19.9% YoY. 2024Q3 achieved revenue of 5.3 billion yuan, -21.2% YoY; net profit to mother of 1.04 billion yuan, -11.6% YoY; deducted non-net profit of 0.99 billion yuan, or -12.6% YoY.

The overall pressure on the revenue side continues, and we look forward to future trade-in effects. By product, the revenue of the 2024Q1-3 company's cabinet/wardrobe and accessories/bathroom/wooden doors was 40.3/7.19/0.8/0.83 billion yuan, respectively, -22.0%/-19.0%/-1.6%/-17.1% compared with the same period last year. By channel, 2024Q1-3's direct operation/distribution/bulk revenue was 0.53/10.39/2.35 billion yuan, respectively, or +4.1%/-18.9%/-12.3%. At the end of Q3, the company had 8180 stores, a net decrease of 536 from the beginning of the year. The overall operating pressure continues. Among them, distribution pressure is even greater, and the performance of new categories is better than the main business. However, Q4 began using trade-in as an external force to improve the company's operations, and the results are expected to continue.

Gross margin increased, and profitability improved markedly. The company's 2024Q1-3 gross profit margin was 35.5%, +1.6pct year on year, net profit margin 14.6%, +0.8pct year on year, 2024Q3 gross profit margin 40.4%, +2.7 pct year on year, net profit margin 19.7%, +2.2 pct year on year, improving profitability. The company saves expenses, improves raw material procurement and production efficiency, and changes in the business structure are also the reason. The cost rate for the 2024Q1-3 period was 19.7%, +2.2pct year on year. Among them, sales, management, R&D, and finance expenses were 10.1%/6.7%/4.7%/-1.8%, respectively, +1.5/+0.8/+0.2/-0.3 pct year on year. The overall cost rate did not fluctuate much, and the company adjusted the cost allocation in a timely manner.

Profit forecasting and investment advice. The company's net profit for 24-26 is estimated to be 2.7/2.9/3 billion yuan, corresponding to a valuation of 15/14/13x. The trade-in will bring upward flexibility next year. The company itself will reduce costs and increase efficiency to improve profits. The company will be given a 25-year 15xPE valuation, corresponding to a reasonable value of 70.38 yuan/share, maintaining a “buy” rating.

Risk warning. Real estate continues to decline, consumption downgrade risk, and raw material price fluctuation risk.