Household exports increased year-on-year in May. According to export data disclosed by the General Administration of Customs, the export value of China's furniture and parts in May was US$6.242 billion, +16.0% over the same period last year. The export value of office chairs (wooden swivel seat with adjustable height, non-wooden swivel seat with adjustable height) in April was US$358 million, +14.1% year on year; sofas (upholstered metal frame seat, upholstered wooden frame seat) in April were export value of US$1,476 million, +13.0% compared to the same period last year. The year-on-year increase in household exports in May was mainly due to steady external demand and a low base during the same period.

The company's domestic expansion is steady, and the growth rate of online sales is impressive. (1) By product, the company's revenue for office chairs/sofases/massage chair body/leisure chairs/others in 2023 was 25.6/5.4/2.4/0.3/170 million yuan, respectively, -7.9%/-34.4%/-32.2%/-18.0%/+196.1%, respectively. The development of many smart new products was completed in 23 years, and differentiated innovation is conducive to improving product strength. (2) By region, the company achieved revenue of 88/2.64 billion yuan domestic/overseas respectively in 2023, +7.9%/-17.9% year-on-year. The level of global inflation was high in '23, and austerity monetary policies in Europe and the US intensified the contraction in demand in the terminal market. At the same time, export orders declined due to inventory removal from European and American channels, leading to a year-on-year decline in overseas revenue. Furthermore, in 2023, the company strategically invested in domestic independent brand building, and continued to increase brand communication volume through various efforts such as flagship product building/marketing strategy optimization/channel system expansion, thereby increasing domestic revenue and brand awareness. (3) By sales model, in 2023, the company's online sales and offline sales achieved revenue of 4.4/3.08 billion yuan respectively, +55.6%/-17.8%, respectively. The growth rate of online sales was impressive, or the main reason was that the company continued to cultivate traditional e-commerce channels while speeding up the deployment of interested e-commerce platforms.

Overseas markets can be expected to recover, and the company's strong product promotion has put pressure on the profit side. 1) In '23, the company's annual gross margin increased by 3.5pct to 22.9%. On the cost side, 23 was the first year of growth for the company's domestic independent brands. Marketing expenses increased, and the sales/management/R&D/finance expenses rates were 7.4%/5.9%/3.5%/-1.1%, respectively, +3.8/+1.5/-0.5/-0.8pct. Taken together, the company's net profit margin was +0.2pct to 8.6%. 2) The 24Q1 company achieved a gross profit margin of 22.1%, -0.3 pct year on year; the sales, management, R&D and financial expenses ratio for the period was 7.3%/5.9%/3.9%/-0.3%, respectively, +0.9/-0.3/-0.1/-0.5 pct year on year. Taken together, the company achieved a net interest rate of 5.2% to mother, -2.3 pct year over year, putting pressure on the profit side in the short term. Overseas market sales declined in '23, and the company bucked the trend and developed a number of key export channels and major customers, laying the foundation for restorative overseas revenue growth. At the same time, the successful commissioning of the Romanian base and the continued promotion of production capacity construction at the Vietnamese base are expected to optimize costs. With the end of inventory removal from overseas channels, it is worth looking forward to an improvement in the profit side of the company's basic export market. As for the domestic market, since brand building is still active, compounded by intense market competition in the early stages of interest e-commerce development, it is expected that the cost side will still have room to improve in the short term, and focus on the marketing results of subsequent companies in the domestic market.

Investment advice: Optimistic about the company's “number one number two” market strategy, domestic brand building is worth looking forward to, and maintain the “recommended” rating. We expect net profit from mother for 24/25/26 to be 3.30/4.05/488 million yuan, corresponding PE is 11/9/7X. Refer to the absolute valuation method and give a target price of 15.0 yuan/share to maintain the “recommended” rating.

Risk warning: International trade frictions, US interest rate cuts and real estate recovery falling short of expectations, fluctuating raw material prices, falling short of expectations, etc.