Fuana is one of the few independent high-end home textile brands in China. In the first three quarters, the net profit deducted lead reached a record high in the same period in history! According to the latest three-quarter reports of the three listed home textile companies, 23Q1-3 Fuana had revenue of 1.92 billion yuan (-2.9% yoy), net profit of 346 million yuan (+5.7% year-on-year), net profit of 346 million yuan (+5.7% year-on-year), and net profit deducted from non-return of funds of 307 million yuan (+5.9% year-on-year). Deducted non-profit in the first three quarters bucked the trend! In comparison, 23Q1-3 Rollei Lifestyle/Mercury Home Textiles deducted non-return net profit of 389/214 million yuan, which is still 16%/7% different from the peak profit for the same period in '21. On the marginal side, Fuana's 23Q1/Q2/Q3 single-quarter revenue ratio was -7.6%/-1.9%/+0.9%. Against the backdrop of a weakening domestic consumption market, it also showed a good trend of steady improvement.
There are only a few national home textile brands. First-tier brands have an excellent competitive pattern, and the gross margin of listed home textile companies is rising.
The gross margin of 23Q1-3 Fuana/Rollei Lifestyle/Mercury Home Textiles increased by 1.4pct/2.1pct/1.8pct year-on-year, showing a simultaneous upward trend, reflecting the increasing consumer recognition of brand premiums. Among them, Fuana stabilizes the first tier of home textile brands and is the only company in the industry to be selected as China's “60 Brands in '60”. It continues to enhance brand premiums through original design and high-end positioning. The 23Q1-3 gross profit ratio is 54.6%, higher than Rollei Life's 44.7% and Mercury Home Textiles's 40.1%, while its outstanding ability to control fees effectively transforms high gross profit into high net profit. 23Q1-3 Fuana's net profit rate of 18.0%, a year-on-year increase of 1.5pct, even higher than Rollei Life 11.0% and Mercury Home Textiles 9.2%, of which 23Q3 has a quarterly profit rate of 19.5%, Approaching the 20% target.
TOC's business advantages+inventory indicators are excellent, reflecting operational capabilities superior to those of peers. According to the company's three-quarter report, 23Q1-3's TOC business (directly+e-commerce) revenue accounts for 63%, and the product line is updated and superimposed in terms of design and innovation every quarter. Compared with popular products and peer companies with a high share of franchise channels, this requires a stronger level of inventory management. As of the end of 23Q3, the company had an inventory of 790 million yuan (-10.9% year on year), and the number of inventory turnover days was 239.2 days (-7.6 days year on year).
Stable dividend assets are scarce in the consumer market, and the shareholding of Shenzhen-Hong Kong Stock Connect continues to increase. In 20-22, Fuana's net current ratio was 1.3/1.4/1.3, ROE (average) 14.5%/15.0%/14.3%. Profitability and quality were outstanding. Since the company went public in 2009, the cumulative dividend rate has reached 51.2%, while the cash dividend ratio including repurchases has been as high as 107%/103%/93% in the past three years. Under solid conditions of steady growth and strong cash flow, the high dividend policy will continue. According to trading system data, as of 2023/11/17, the Shenzhen Stock Connect System's holdings of Fuana reached 32.66 million shares, accounting for 6.75% of its outstanding A shares. This is a significant increase from the number of shares held at the beginning of the year, which only accounted for 0.26% of its circulating A shares, and is still continuing to increase.
We believe that Fuana, as a national brand of home textiles in China, has outstanding asset scarcity. Currently, it is still undervalued, and reaffirms that it maintains a “buy” rating. At the end of the 23Q3 period, the company's monetary capital and transactional financial assets reached 1.41 billion yuan (+12.2% year-on-year). All short-term and long-term loans were zero, combining risk resistance with potential expansion conditions. Maintaining the profit forecast, the net profit for 23-25 is estimated at 5.9/6.6/730 million yuan, corresponding to PE of 12/11/10 times, reaffirming the maintenance of the “buy” rating.
Risk warning: The company recently received warning letters, letters of concern, and critical disciplinary decisions, mainly involving misdisclosure of information relating to the sixth restricted stock incentive plan and the basis for setting assessment indicators. The company has provided a detailed response and explanation. We believe that the above issues will not affect the continued positive development of the company's main home textile business.