Revenue and profit declined slightly in the second quarter. The company released its 2024 semi-annual report. 2024H1 achieved revenue of 8.91 billion/ +0.3%, net profit of 0.9 billion/ -3.0%, net profit of 0.78 billion/ -6.8%; according to estimates, 2024Q2 achieved revenue of 4.56 billion/ -7.4%, net profit due to mother 0.48 billion/ -9.1%, net profit of non-attributable net profit of 0.41 billion/ -18.5%. Domestic trade was relatively pressured by weak real estate and domestic demand. Although foreign trade was affected by disruptions in shipping and external downhill, overall, it maintained relatively good growth; the profit side was dragged down by exchange, gross margin improved significantly due to increased overseas production capacity, and overall profitability was steady.
The integrated two-wing strategy is progressing steadily, and the whole family and customization are growing rapidly. By product, 2024H1 sofas, bedroom products, integrated products, and custom furniture achieved revenue of 49.4/1.53/1.27/0.49 billion yuan, with a year-on-year revenue of +14.2%/-19.9%/-17.4%/+24.9%, gross margin of 35.1%/40.5%/30.6%/35.1%, +1.4pct/+5.2pct/+3.0pct/+6.9pct. The core category of sofas is growing well. It is expected to be mainly driven by export sales. The growth of beds and ancillary products is under relative pressure. Under the integrated two-wing strategy, 2024H1 customization growth is impressive. The overall customized store expansion has maintained medium- to high-speed growth, and integrated store openings have accelerated, accounting for more than 35% of total package sales in integrated stores.
Domestic sales are under relative pressure, and foreign trade is contributing to growth. 2024H1 domestic trade revenue 4.72 billion/ -9.8%, gross profit margin 37.8% /+1.3pct, foreign trade revenue 3.89 billion/ +12.6%, gross profit margin 26.0% /+2.9pct. Domestic sales are adhering to whole-house and retail transformation, further increasing the coverage rate of warehousing services. It is expected to reach more than 50% in 2024. In terms of the stock market, the trade-in model is leading the way in the industry; in terms of export, special pioneers develop large customers to seize large numbers of orders in superior categories, further increase the share of SPO business, and actively explore the overseas distribution of their own brands, setting up full-house benchmark brand stores in India, Vietnam, Thailand, Uzbekistan, Kazakhstan and other countries.
Gross margin has been rising steadily, profits have been steady, and the increase in executive holdings shows confidence. The Q2 gross profit margin is 33.0% /+2.0pct, which is expected to benefit mainly from internal cost reduction and increased production capacity efficiency at overseas bases; the rate has increased under revenue pressure. The Q2 sales/management/R&D/finance expenses ratio is 16.7%/1.5%/2.6%/-0.2%, compared to +1.2pct/-0.9pct/+1.4pct/+1.6pct. Among them, the increase in financial expense ratio is mainly due to a decrease in exchange earnings, and the Q2 net profit margin is 10.4% /-0.2pct. In July, director and executive Li Donglai announced his intention to increase his holdings. The estimated amount is 0.15-0.22 billion yuan. The bottom increase shows confidence in future development.
Risk warning: The recovery in consumption fell short of expectations; the completion of real estate sales fell short of expectations; the competitive landscape of the industry deteriorated.
Investment advice: Lower profit forecasts and maintain the “better than the market” rating.
I am optimistic about the steady growth of leading software furniture companies, domestic and foreign trade transformation and transformation, category expansion, and efficiency gains. Adjusted profit forecasts, net profit due to mother for 2024-2026 is 2.03/2.23/2.47 billion (previous value 2.27/2.57/2.88 billion), +1.4%/9.8%/10.5% YoY, diluted EPS = 2.5/2.7/3.0 yuan, corresponding PE = 10/9/8x, maintaining the “better than the market” rating.