The first half of the fiscal year was in line with market expectations

The company announced its mid-year results for the 2025 fiscal year: operating income of HK$8.305 billion, net profit of HK$1.139 billion, net profit of HK$1.139 billion, +0.3% year-on-year, after deducting non-net profit of HK$1.27 billion, and -1.4% YoY. The results were in line with market expectations. The company plans to pay HK15 cents per share, with a dividend payout ratio of 51.1%.

Development trends

Overseas markets are growing rapidly, and domestic sales are under pressure. 1) Split by country: 1H25FY China/North America/Europe and other overseas markets (excluding HG) /HG revenue was 49.75/2.154/0.733/0.371 billion HKD, respectively, -17.2%/+5.7%/+24.5% year-on-year. The rapid growth in overseas markets was mainly due to sales growth under market development, and ASP was under pressure. 2) Domestic sales split: 1H25FY domestic sofa/mattress revenue was HK$3.286/1.209 billion, respectively, -15.6%/-18.9% YoY, mainly affected by weak domestic demand; offline/online channel revenue was HK$3.487/1.007 billion, or -14.9%/-21.6% YoY. As of 1H25FY, the company had 7,516 domestic terminal brand specialty stores, a net increase of 280 compared with 24FY, with a closing rate of about 4.7%.

, raw material costs have declined, and both gross margin and net profit margin have increased. Under the influence of purchasing raw materials at low prices, the 1H25FY gross margin was 39.5%, +0.4ppt; due to increased shipping costs and sales staff remuneration, the sales expense ratio was +0.3ppt to 18.2% year over year, management expense ratio -1.3ppt to 3.8%, year-on-year -1.0ppt; financial expense ratio 0.88%, year-on-year -0.22ppt. Under the combined influence, the net interest rate was 13.7%, +1.0ppt year over year. We expect gross profit and net profit margins to remain relatively stable in the future.

, store expansion, and higher customer unit prices are expected to drive performance growth. Looking ahead to 2HFY25, 1) Domestic sales: The company plans to add more than 200 stores in the second half of the fiscal year. Under the influence of policies such as trade-in, the company will increase sales and sofa sales to supplement materials and series of products for different markets, which we believe is expected to drive a recovery in sales and performance; 2) Export sales: the US market will adopt a low price promotion strategy in half of the fiscal year, sales will increase by 18%, and the market share will increase by about 6%. We believe that with the optimization and adjustment of the product structure, the European market is expected to increase customer unit prices and profit levels; the European market is expected to increase customer unit prices and profit levels by expanding cooperative retailers, technology product development and Expanding inventory coverage continues the double-digit growth trend.

Profit forecasting and valuation

Considering the pressure on domestic sales, we lowered FY25/FY26 net profit by 13%/18% to HK$2.422/2.697 billion. The current stock price corresponds to FY25/FY26 by 7/7 times the price-earnings ratio. Maintaining an outperforming industry rating, we lowered our target price by 22% to HK$7 based on profit forecast adjustments, corresponding to FY25/FY26 price-earnings ratios 11/10 times, respectively, with 51% upside compared to the current stock price.

risks

Prices of raw materials fluctuated greatly, the decline in real estate sentiment exceeded expectations, and overseas trade risks.