Introduction to this report:

A leader in the home textile industry, the “Mercury” brand image is deeply rooted in the hearts of the people. The company continues to promote a large single product strategy. Product structure upgrades and refined omnichannel operations drive steady growth in performance, and is expected to continue to have high dividends.

Key points of investment:

Investment advice: The first coverage gives an “gain” rating. The 2024-2026 EPS forecast is expected to be 1.32/1.54/1.79 yuan. Considering the company's stable position as a leading home textile company, combined with PE and DCF valuations, a target price of 19.32 yuan was given, giving a “gain” rating.

Positioned as a high-quality and cost-effective competition channel, the leading position in home textiles is stable. The company has been deeply involved in the industry for more than 30 years and is deeply involved in the big single product strategy. Products such as quilts are not only of excellent quality, but also have outstanding cost performance advantages. The image of “good quilt core, choose Mercury” is deeply rooted in the hearts of the people. The company entered the e-commerce channel layout as early as 2008, leading the industry in online development and promoting rapid expansion of revenue scale. The 2013-2021 revenue CAGR was 11.5%, of which online CAGR reached 31%. Thanks to the increase in gross margin, the CAGR of net profit to mother reached 18.6%, and the growth rate was superior to the revenue side. Due to short-term fluctuations during the pandemic in 2022, operations improved markedly in 2023 as consumption recovered. Affected by the macroeconomic situation in 2024, terminal sales weakened again, but were still better than the industry average.

The industry pattern is stable, leading companies have outstanding competitive advantages, and future market share can be expected to increase. Currently, the scale of the home textile industry is expected to maintain a steady growth trend in the number of low units. Among them, the increase in the frequency of replacement is one of the main driving factors driven by the upgrading of consumer attitudes. The current industry pattern is stable, but Mercury's market share is only 1-2%, and there is still room for improvement in the future. The company has outstanding competitive advantages: 1) Product side: Product strength continues to improve, and cost performance advantages are outstanding. At the same time, the company's “big single product” strategy has achieved remarkable results, and launched a combination of large single product strategies to help sell a full range of products; 2) Channel side: online layout leads the industry, and omni-channel operations are progressing steadily. As early as 2008, the company took the lead in setting up online channels. The number of fans ranked first in the industry. In 2023, the proportion of online revenue reached 57%. Offline is mainly franchise channels. In recent years, with the acceleration of new retail models, store efficiency has improved markedly. 3) Marketing side: Give full play to category advantages, strengthen consumer awareness through accurate marketing, and attract more young consumers through co-branded IP products.

Future outlook: The share of high value-added products is expected to increase, and performance is expected to grow steadily. On the one hand, the company will continue to make efforts on the supply chain side, and its own production capacity is expected to increase, laying a good foundation for the production and development of high-end products; on the other hand, the company will continue to promote a steady increase in the share of high-value-added products; at the same time, the company will continue to promote omnichannel construction, empowered through new retail tools to improve the quality of channel operation, and steady growth in performance can be expected.

Risk warning: Terminal consumption falls short of expectations, channel expansion falls short of expectations