preface

The company is mainly engaged in ODM business in categories such as smart electric sofas and beds (in recent years, the overseas market accounts for more than 95% of revenue, of which the US market accounts for nearly 90%). At the same time, the company has set a long-term goal of building its own brand in 2022 and continues to increase OBM business development. The company's 19-23 revenue/net profit CAGR reached 13.1%/37.8% respectively, and 24Q1 revenue/net profit increased by 30.6% and 57.1% year-on-year respectively, and continued to maintain an excellent overall growth trend.

Investment logic

The export boom is continuing or strong, and the smart home market space is still wide. At the industry level, in the short term, the US furniture industry is in the inventory replenishment cycle. From January to June '24, China's furniture export value was +14.8% year-on-year. Historical inventory restoration is expected to continue for 6-12 months, boosting China's furniture export boom and may continue until 24H2. Also, expectations of US interest rate cuts are heating up in July '24. If interest rates are cut as scheduled, the restoration of the US real estate chain may boost the continuation of China's export boom. In the long run, smart home products with functional sofa/smart electric bed as the core category are gradually replacing traditional home products. In 23, the total market size of the functional sofa/smart electric bed in the US reached 15.88 billion US dollars, and the product penetration rate was about 50%/20% respectively. Subsequent product structure upgrades and product penetration increases are expected to drive further expansion of the industry.

ODM business: Product innovation first, customers continue to expand, and promote a sharp rise in volume and price. The ODM business has shown a “sharp rise in volume and price” trend in recent years. In 19-23, the company's smart electric sofa sales CAGR was 21.1%, and the average price CAGR was 4.9%. The company's excellent growth is mainly based on the company's competitive advantage in product research and development, customer development and supply chain. The three major advantages will also drive the company's continued growth: 1) Product R&D: maintaining R&D expenses above 6% over the years, focusing on product innovation and establishing a mid-to-high-end position; 2) Customer development:

While binding to major core customers, we also rely on our excellent reputation to expand small and medium retail customers. As of 24Q1, there were 37 company customers among the US TOP100 retailers (only 21 in 21 years); 3) Supply chain: forward-looking layout of Vietnam bases to avoid tariffs, reduce costs, and have a localized US warehousing and after-sales service team to jointly help front-end sales.

OBM business: Independent brands are being incubated at an accelerated pace, and the store-to-store model is expected to work. In '23, the company has taken many steps to accelerate the development of its own brand. The results are gradually showing, which is expected to contribute to the increase in performance:

1) Brand: The logo was changed and the MotoLiving brand was launched in January 23. The 24Q1 order has reached the level of 10 million dollars; 2) Product: Comparing the company's functional sofa products, you can find that the company's functional sofa products are solid in materials and rich in functionality; 3) Channel: Jointly with retail customers to create a store-to-store model to continuously optimize the store situation while increasing multi-faceted empowerment, and independent brand awareness is expected to increase.

Profit forecasts, valuations, and ratings

We expect the company's net profit to be 0.493/0.597/0.706 billion yuan in 24-26, +21.0%/+21.3%/+18.2% YoY. Considering that the development of the company's own brand can be expected, a reasonable valuation of 18X in 24 years and a target price of 53.3 yuan/share was given, for the first time, a “buy” rating.

Risk warning

External demand improved, expectations were low, net interest rates declined, exchange rates fluctuated, and shipping costs rose sharply.