24H1's revenue was 3.088 billion yuan, -10.07% year over year; net profit to mother was 0.038 billion yuan, -77.82% year over year; net interest rate to mother was 1.23%, -3.76pct year on year. 24Q2's revenue was 1.953 billion yuan, -15.96%; net profit to mother was 0.128 billion yuan, -23.69% year over year; net interest rate to mother was 6.57%, -0.67pct year on year.

Domestic sales were weak, and exports brought in additional volume. By channel, 24H1's distribution and retail/e-commerce /home improvement/ engineering revenue was 12.5/0.625/0.479/0.698 billion yuan, respectively, -6.33%/-12.64%/-5.96%/-17.73%. Affected by the decline in domestic real estate, weak consumption, and increased competition in the industry, the company's revenue from all channels declined in the first half of the year; the company actively expanded the secondary renovation and partial renewal markets, while actively expanding the sinking channels. At the end of 24H1, the total number of terminal outlets in the company was 19621, +2,054 over the same period last year. The new outlets were mainly home improvement stores, community stores and township stores. Looking at the subregion, 24H1's domestic/overseas revenue was 2.926/0.162 billion yuan respectively, -13.33%/+178.25% compared with the same period last year. The export growth rate was impressive, bringing in new volume.

The share of smart toilets in revenue continues to rise, but downward pressure on average prices still exists. 24H1's sanitary ceramics/faucet hardware/bathroom furniture revenue was 1.57/0.833/0.334 billion yuan, -6.08%/-12.13%/-0.17% year-on-year.

24H1's smart toilet revenue was 0.635 billion yuan, -7.66% year over year (sales volume +2.55% year over year; revenue decline was mainly affected by the decline in average price); revenue accounted for 20.55%, +0.54 pct year on year.

To reduce costs and increase efficiency throughout the value chain, the decline in gross margin narrowed in Q2. The company's 24H1/24Q2 gross profit margin was 27.03%/28.56%, -2.41/-0.4pct year-on-year. The year-on-year decline in H1 gross margin was mainly affected by increased competition in the industry and falling product prices; the company actively promoted cost reduction and efficiency throughout the value chain, and the decline in Q2 gross margin narrowed.

There has been a slight increase in the fee rate. 24H1's sales/management/R&D/finance expenses ratio was 7.6%/11.22%/5.48%/0.64%, respectively, -0.89/+2.02/+1.11/+0.68pct. Among them, the decrease in the sales expense ratio was mainly due to the adjustment of dealer subsidies, while the increase in other expense rates was mainly due to a decline in revenue and the inability to dilute expenses in the short term.

Investment advice: The company is a leading domestic bathroom company with a perfect layout in terms of products, brands, channels, etc., and is expected to benefit from industry concentration and domestic substitution in the future. We expect the company's net profit to mother of 0.331/0.386/0.463 billion yuan in 24-26, or -22.1%/+16.7%/+19.9% year-on-year, maintaining the “increase” rating.

Risk warning: Increased market competition, rising raw material prices, and real estate recovery falling short of expectations.