Key points of investment:
The company released its annual report for the year 23 and the quarterly report for '24, and the profit side fell short of expectations. 1) Revenue of 5.32 billion yuan (year-on-year flat), net profit of 572 million yuan (YoY -1.4%), 24Q1 revenue of 1.09 billion yuan (-12.3% YoY), and net profit to mother of 89 million yuan (-49.5% YoY), mainly due to a sharp decline in overseas furniture business and early investment in brand marketing expenses in 24Q1. According to the financial data of major subsidiaries disclosed in the 22nd and 23rd annual reports, the net profit of the subsidiary Hong Kong Family Life Investment Management Co., Ltd. (including Lexington in the US) in 23 was 37 million yuan, a year-on-year decline of more than 60%, which was the main reason for dragging down the net profit performance of the consolidated statements. 2) The proposed cash dividend for fiscal year 23 is 330 million yuan, with a cash dividend ratio of 58% and a dividend of 0.4 yuan per share, and a promise to pay a dividend of not less than 0.2 yuan per share in 24 and a half years. If calculated according to the minimum total dividend of 0.6 yuan/share, the dividend rate corresponding to the latest stock price exceeds 6%, which is quite impressive.
Profitability is relatively stable, and we are committed to improving operations. According to the 23rd Annual Report: 1) The gross profit margin and expense ratio have risen sharply, and the net interest rate has stabilized. The gross profit margin for 23 years was 47.3% (1.3 pct year over year), with a sales expense ratio of 24.7% (+3.2pct year over year), which was a significant increase, while the management expense ratio was 5.9% (-0.8 pct year over year) and the R&D cost ratio was 2.1% (same year on year). Ultimately, when profits from the overseas furniture business were greatly dragged down, the net interest rate of the domestic home textile business remained 10.8% (flat year on year), indicating that the net interest rate of the domestic home textile business is still increasing. 2) Thanks to the digital system to optimize the supply chain, inventory declined, cash flow increased dramatically, and business quality improved. As of the end of 23, inventory was 1.34 billion yuan (-17.9% YoY), and the number of inventory turnover days was 191 days (+6.5 days year over year). Omni-channel inventory removal was effective, laying the foundation for future growth flexibility.
Net operating cash flow in '23 was 940 million yuan (+117% YoY), reaching a net present ratio of 1.6 million yuan. By the end of '23, the company's monetary capital had reached 2.12 billion yuan, establishing a sustainable high dividend capability and sufficient resilience to risks.
By channel, direct management has rebounded sharply, online growth has been steady, and franchising has declined slightly, but gross margin has all increased. According to the 23rd Annual Report: 1) Online: Online revenue in '23 was 1.61 billion yuan (+8.6% YoY), with a gross profit margin of 52.2% (+1.7pct year over year). The effect of increasing the unit price of online customers has been remarkable in recent years, and gross margin has continued to rise. 2) Offline: Direct operating revenue in '23 million yuan (+31.7% YoY), gross profit margin 67.2% (YoY +0.7pct), franchise revenue 1.79 billion yuan (YoY -3.9%), gross profit margin 47.4% (YoY +0.7pct). By the end of '23, the total number of stores was 2,730 (net increase of 68), including 335 direct-run stores (net increase of 28) and 2,395 franchised stores (net increase of 40). The company has entered a period of active expansion in recent years, opening 432 new stores in 23, continuing the effort of opening 452/399 new stores in 21/22. We believe that with the survival of the fittest, the number of subsequent store closures is expected to decrease, and the net growth rate of stores will increase every year.
Rollei Bedding ranked first in the overall market share for 19 consecutive years, and the domestic home textile business is growing steadily. We expect that the overseas furniture business will also experience performance improvements in 24H2 and maintain the “gain” rating. Considering the domestic home textile franchise business and the pace of recovery in the overseas furniture business, we lowered our 24-25 profit forecast and estimated net profit of 6.1/7.0 million yuan (originally 79/940 million yuan in 24-25 years), corresponding PE was 13/11/10 times. Referring to the average PE valuation of comparable companies, the target market value was 9.2 billion yuan, with a target market value of 9.2 billion yuan, with a 16% increase over the 2024/4/26 market value, maintaining the “gain” rating.
Risk warning: On March 2, 24, the company disclosed the “Notice Concerning Receipt of a Warning Letter from the Jiangsu Securities Regulatory Bureau”, which mainly involves irregularities in the disclosure of letters regarding the resignation of directors. The company and related personnel have deeply reflected and carefully learned the lessons. We believe that the above issues will not have a significant impact on the development of the company's main business, so I hereby alert.