Conclusion: Considering that the company's performance is greatly affected by fluctuations in downstream demand, the company's 2024-2025 EPS forecast was lowered to 0.58/0.68 yuan (originally 1.32/1.46 yuan), the 2026 EPS forecast was added to 0.79 yuan, and the target price was lowered to 12.18 yuan (originally 17.16 yuan) with reference to comparable company valuations to maintain the “gain” rating.

Make every effort to promote brand upgrading and actively expand the door and wall cabinet category. The company achieved all-round upgrades through terminal transformation and full-case design and marketing, and launched the “Dream Dip” series of overall wooden products. The company achieved revenue of 1,317 billion yuan/ -5.16% in 2023. Among them, cabinet revenue in 2023 increased 16.03% year on year, and gross margin increased 0.35 pct year on year, becoming the driving force for performance growth.

Joining hands with high-quality decoration companies to deepen cooperation, the home improvement channel has grown significantly. The home improvement channel deepened the layout of key cities, implemented strategic cooperation with leading equipment companies, and expanded the channel revenue of home improvement companies to the Lianghu and Yangtze River Delta regions on the basis of Hangzhou, Sichuan and Chongqing, and increased 130.21% year-on-year in 2023. It is expected that in 2024, the company will expand its product categories to enter smart homes with entry doors and smart door locks. The product structure and brand positioning are expected to continue to be optimized, leading to an increase in profitability.

Increased spending and bad debts suppress profits, and performance is expected to improve as scale effects unleash.

In 2023, the company's gross profit margin was 28.11% /-3.82pct, the net profit margin was 7.27% /-8.60pct, and the sales expense rate/management expense ratio increased by 3.32pct/1.04pct/0.05pct year-on-year. The company prepared 0.24 million yuan for bad debts in 2023. Increased expenses and bad debt accruals during the period put pressure on profits. It is expected that scale effects will be released along with category extensions, and profitability will gradually improve.

Risk warning: Prices of raw materials fluctuate greatly: brands and products are being counterfeited.