FY2025 Interim Results Overview: The company achieved total revenue of HK$8.47 billion (-7.4% YoY); main revenue of HK$9.31 billion (-7.1% YoY). The Group's gross margin was +0.4 pct to 39.5% year-on-year, mainly due to a decrease in raw material costs. The operating expenses ratio was reduced by 1 percentage point, benefiting from a reduction in promotion costs and an out-of-court settlement of a lawsuit with a former supplier (so the provision for multiple charges was withdrawn). Effective tax rate increased from 16.2% to 17.0%. Net profit to mother was HK$1.14 billion (+0.3% YoY), and net profit margin to mother was 13.7% (+1.0pct).

The company paid out HK15 cents per share during the period, with a dividend payout ratio of 51.5%. During the period, the number of stores in China increased net by 280 to 7,516; a net increase of 500-600 is expected for the whole year.

The Chinese market was -17.2% year-on-year, and the European and American markets continued to grow: by market, China's main revenue was HK$4.98 billion (-17.2% YoY, affected by a further decline in domestic demand and unit price); North American revenue of HK$2.15 billion (+5.7% YoY, shipment volume +18%, ASP -10%), European and other overseas market revenue of HK$0.73 billion (YoY +37.7%, shipment volume +45%, ASP -6.7%). The growth in overseas markets has mainly benefited from the Group's active participation in exhibitions, expanding new channels and new customers, reshaping the talent building of the sales force and strengthening the development and upgrading of new export products. The Home Group's revenue was HK$0.37 billion (+24.5% year over year; production facilities in Ukraine were not seriously damaged during the period). Revenue from other businesses increased by 12.1% to HK$0.07 billion, mainly due to increased property rental revenue.

Beds grew rapidly, and sofa sales increased 26.6%: By product, the Group's sofa/bed revenue was year-on-year (-5.8%)/(-18.9%) to 5.82 billion HK$1.21 billion, respectively. Sofa/bed revenue in the Chinese market was -15.2% and -18.6% (RMB caliber), respectively. The Group's sofa sales volume was 0.908 million units year-on-year (+3.0%). The year-on-year sales volume of sofas in China (-9.9%) reached 0.482 million sets, while the year-on-year sales volume of overseas sofas (+22.8%) reached 0.427 million sets. The unit price of sofas in China fell 4.0%. The Group continues to be the number one selling functional sofa company in the world.

The increase in gross margin benefited from the reduction in raw material costs: the Group's gross margin was +0.4 pct to 39.5% year over year. Chinese market (-1.0% to 40.2% YoY, affected by ASP decline), North American market (+4.8% to 40.7% YoY), European and other overseas markets (+3.4%% to 30.8% YoY). The increase in the Group's gross margin was mainly due to a decrease in raw material costs. The average unit price of leather/steel/wood chipboard/ calico fabric/ chemicals/ wrapping paper among the company's main raw materials was -5.3%/-8.3%/+3.9%/-1.1%/-11.5%/-9.4% year-on-year.

Other key points: According to information, the Chinese market is estimated to have recorded a flat performance in October/November, benefiting from the subsidy policy; the decline in the Chinese market is expected to narrow in the second half of the fiscal year. As for the time to see the low, you need to observe; if you have a chance, you will have to wait until 25/26. Overseas markets, on the other hand, are expected to maintain growth, while the European market should maintain double-digit growth. In order to meet trade challenges, the Group has plants in Vietnam and Mexico, which can reduce export risks and better expand the US market. If additional tariffs are introduced, I believe the Group will also have new strategies to deal with them.

The target price is HK$6.30, maintaining the purchase rating: China's functional sofa market currently has a low penetration rate, and there is great potential for long-term growth; as a leading company, we believe the Group can continue to increase its market share. Overseas growth should be faster than the Chinese market in the short term. As the Group continues to strengthen new product development and technological innovation, it has vertical large-scale production capacity, and has advantages in terms of quality and cost; it is beneficial to the development of China and overseas markets. We continue to be optimistic about the company and maintain our buying rating; we have given the company a target price of HK$6.30, which is 10.8xPE predicted for 2025.

Risk: The magnitude of the consumption downgrade is more affected than expected at the macro level, changes in exchange rates, and fluctuations in raw material prices.