Key points of investment:

The company released its 2024 mid-year report. The performance was basically in line with expectations: 24H1 achieved revenue of 3.958 billion yuan, up 4% year on year; realized net profit of 0.234 billion yuan, up 5.1% year on year; after deducting non-net profit of 0.223 billion yuan, up 5.1% year on year; of these, Q2 single quarter revenue was 2.196 billion yuan, down 6% year on year, net profit of 0.16 billion yuan year on year, minus 0.149 billion yuan in non-net profit , a year-on-year decrease of 8.3%.

Independent brand online retail: Affected by the external environment, online growth slowed slightly in 24Q2, and the share continued to increase. 24H1's own brand's online retail revenue was 0.82 billion yuan, +6.1% year-on-year. The company enriches the online product matrix and price range, expands demand for new products upward, and captures cost-effective demand such as renting; seizing the Douyin platform's resource-tilting window for new categories such as home live streaming, the drainage and transformation effect is better.

Independent brand offline retail: 24H1 offline retail organizational structure was adjusted, revenue declined year-on-year, and growth is expected to gradually recover in the second half of the year. 24H1's independent brand's offline retail revenue was 1.58 billion yuan, -11.1% YoY. The number of 24H1 stores was 5589, including Xilinmen/Ximian/MD 3485/1630/474, compared to -66/+18/-16 at the end of 2023. Since this year, retail transformation has been strengthened, and the functions of the terminal business have been sorted out and adjusted. Ximen has focused on the layout of the 45-line market, the layout of new channels such as community stores, etc., to promote trade-in business, activate demand for stock refurbishment, and diversified channel development; the reform of the sales staff assessment system has changed from shipment assessment to retail assessment to promote sales improvement.

International business: International foundry and cross-border e-commerce have increased rapidly, and their role in supporting revenue is gradually increasing. 24H1 OEM revenue was 1.16 billion yuan, 18.8% YoY. 24H1 is actively expanding overseas markets and increasing development efforts for new customers. The business growth in potential regions such as Latin America and the Belt and Road is strong, and the 24H1 overseas OEM business has achieved relatively rapid growth. Domestic OEM is affected by external pressure, and 24H1 growth is under pressure. By exploring customer needs, optimizing design costs, and improving competitiveness, the 24H1 cross-border e-commerce business revenue was 0.15 billion yuan, +30.4% year-on-year, with impressive growth performance.

Hotel engineering business: Continue to expand new customers, deepen the hotel chain market, increase cooperation with leading hotels, and further increase market share. 24H1 independent brand project revenue was 0.24 billion yuan, +53.6% year over year.

The business structure has changed, and profitability has weakened slightly. The gross margin of 24H1/24Q2 was 34.8%/35.8%, respectively. The 24H1 international foundry and hotel engineering business achieved relatively rapid growth, and the gross margin declined due to changes in the business structure. The overall cost rate of 24H1 is relatively stable. The revenue of 24Q2 independent brands is under pressure. The cost rate has increased year over year. The company continues to reduce internal costs and improve efficiency, and the 24H2 cost rate performance is expected to improve. 24H1 sales/management/R&D/finance rates were 19.4%/5.6%/2.3%/0.4%, year-on-year, -0.1/-0.1/+0.2/+0.4pct, 24Q2 sales/management/R&D/finance expenses ratio 19.6%/5.3%/2.1%/0.5%, and +0.3/-0.1/+1.3pct year over year.

The Xilinmen Card is a benchmark in the domestic mattress gold circuit, enjoying the dividends of increased industry penetration and concentration; the diversified business layout of overseas OEM and cross-border e-commerce supports overall steady growth. Considering the restructuring of 24H1's domestic retail business organization, 24H1 revenue pressure is high. We lowered our 2024-2026 net profit forecast to 0.539/0.594/0.655 billion yuan (previous value: 6.39/7.13/7.93), 25.6%/10.3%/10.2% year-on-year in 2024-2026. The PE corresponding to the current market value is 10X/9X/8X, maintaining the “buy” rating!

Risk warning: The decline in real estate affects household consumption demand, home export demand is slowing down, and terminal competition is intensifying.