Incidents:

The company released its three-quarter report for 2024. The first three quarters of 2024 achieved revenue of 1.85 billion yuan, +27.1% year-on-year, and realized net profit of 0.43 billion yuan, +33.6% year-on-year, and +36.3% year-on-year after excluding the impact of share payment fees.

3Q2024 achieved revenue of 0.64 billion yuan, +26.1% year over year, and realized net profit of 0.15 billion yuan to mother, +19.9% year over year.

Comment:

Both revenue and profit increased, and independent brand building progressed steadily: with strong product innovation capabilities and outstanding customer development and maintenance capabilities, the company achieved rapid growth in both revenue and profit in the first three quarters of 2024.

In the first three quarters of 2024, the company's top 10 customers were all US customers, 70% of which were retailers. Among the top 10 customers, the purchase volume of 9 customers all increased, with year-on-year increases ranging from 4.33% to 316.62%. Among them, 3 customers increased their purchases by more than 50%, 2 customers increased by more than 200%, and the stickiness of old customers continued to increase.

In the first three quarters of 2024, the company added 68 new customers, all retailer customers. Of these, 10 were among the “Top 100 Furniture Retailers in the U.S.” Thanks to the increase in retailer customers, the number of the company's retail customers in the US in the first three quarters already accounted for 81.75% of the total number of furniture customers in the US, and sales to US retailer customers accounted for 57.78% of total revenue, contributing 64.27% of the revenue in the US market, and the development of new customers progressed steadily.

In addition, in the first three quarters of 2024, the company has built more than 150 small to medium sized store-to-store stores in the above US retail customers, and has taken firm steps to build overseas OBM.

Raw material prices have declined and the product structure continues to be upgraded, and the company's gross margin has continued to rise: the company's gross margin for the first three quarters of 2024 was 33.7%, +1.7 pcts year-on-year. 3Q2024 gross margin was 34.6%, +1.6pcts YoY. According to wind data, the average price of 3Q2024 soft foam polyether ton was 9015 yuan, compared with -1190 yuan. We believe that on the one hand, the increase in the company's gross margin has benefited from the reduction in raw material prices, and on the other hand, it is due to the increase in revenue share of the high-margin smart electric sofa business.

The company's expense ratio for the first three quarters of 2024 was 8.7%, -0.5pcts year-on-year. By project, the sales/management/R&D/finance cost rates were 3.0%/3.4%/4.9%/-2.6%, respectively, +0.4/+0.1/-0.8/-0.2pcts. The 3Q2024 company's cost rate for the period was 11.2%, +2.2pcts year-on-year. By project, the sales/management/R&D/finance cost rates were 2.8%/3.2%/5.1%/0.1%, respectively, +0.2/-1.3/-0.4/+3.6pcts, respectively. We believe that the main reason for the increase in the company's Q3 financial expense ratio was due to increased exchange losses due to the appreciation of the RMB.

Excellent performance, maintaining a “buy” rating: Considering that the company's performance in the first three quarters exceeded expectations, we slightly raised the company's net profit forecast for 2024 to 0.55 billion yuan (3% increase), and basically maintained the 2025-2026 net profit forecast. EPS for 2024-2026 was 3.33/4.05/5.05 yuan, respectively, and the corresponding PE was 17/14/11 times, respectively. US real estate is expected to recover quickly after the Federal Reserve cuts interest rates, and the company's customer development ability is strong, and the overseas OBM business is steadily being built. We are optimistic about the company's performance growth potential during the upward period of the industry boom and maintain a “buy” rating.

Risk warning: The US interest rate cut process fell short of expectations. Weak US consumption caused household demand to weaken, and the exchange rate of the US dollar against the RMB fluctuated greatly.