Profit Expectations Stabilize, Home Sector Sees Dawn
The home furnishing sector is attempting to navigate the dual impacts of real estate and consumer spending. The gross profit margins of various companies remain stable, with no significant decline observed, and some companies are still expanding their production capacities. In the era of existing housing, the customized home furnishing industry has transitioned from rapid growth to a stage of high-quality development.
Affected by factors such as adjustments in real estate sales and extended consumer decision-making cycles, home furnishing companies faced overall operational pressures in the first half of 2024. Leading manufacturers leverage their financial and scale advantages to build production bases, striving to shorten product delivery cycles, continuously breaking through production capacity bottlenecks, and controlling accuracy and repair rates. While providing supply chain assurance for front-end sales, they also reduce operational costs at the factory and distributor levels.
On the other hand, in the era of existing housing, the rise of new consumerism has gradually shifted the path of home furnishing consumption towards a pursuit of one-stop, personalized, short-cycle, and practical directions. This shift drives home furnishing companies to move from the initial logic of simple category expansion to a sales approach focused on traffic preemption and suite sales. Leading enterprises actively layout channel refinement and business model innovation, dedicating themselves to improving the efficiency of terminal distributors in the era of fragmented traffic, catering to home furnishing consumption demands.
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By the end of the third quarter, real estate policies at various levels continue to repair market confidence, and home furnishing replacement is strongly supported across the country to promote consumer growth. The home furnishing sector, as a post-real estate cycle industry, is expected to benefit. Leading companies such as Sogal and Oppein Home have successively introduced employee stock ownership plans and shareholder dividend return plans, setting performance growth targets. Shangpin Home and Zbom Home have respectively financed and expanded production, with industry differentiation still underway, and the future market pattern is worth looking forward to.
Since 2018, the growth rate of new housing sales in China's real estate market has slowed down, ushering in the era of existing housing. The customized home furnishing industry has transitioned from rapid growth to high-quality development, moving from single-category single-space products to deep integration of multi-category multi-space, and towards a state of convergence in standardization, regulation, and quality. In this fully competitive business environment, the Matthew effect has become more pronounced, with continuous clearing at the industry's tail, and the competitive advantages of leading companies are slightly different. However, in terms of resource integration capabilities for whole-home sales, leading companies have a clear advantage, raising the industry barriers and further increasing concentration.
In the second quarter of 2024, the retail channel revenues of Oppein, Zbom, Gold Medal, and Jiangshan Oppein decreased by 23.8%, 17.1%, 19.5%, and 25.2% year-on-year, respectively, further weakening compared to the first quarter, with the overall number of channels showing a downward trend. The revenue from Tuobao Baby's decorative materials increased by 29.0% year-on-year, and the whole-house customization revenue increased by 22.0% year-on-year, while the engineering customization revenue decreased by 48.6% year-on-year. Zbom Home expanded against the trend, opening 348 new stores in the first half of the year, with a 17% year-on-year decrease in single-store revenue; Oppein Home's store count decreased by 387 compared to the beginning of the year, with a single-store revenue of 810,000 yuan, a 24% year-on-year decrease.
In the first half of the year, Oppein Home's retail distribution channel revenue decreased by 23% year-on-year, significantly affecting the company's operating income; the whole-house channel revenue increased by 8.7% year-on-year, the bulk channel revenue increased by 1%, and the foreign trade channel revenue increased by 27%; the direct channel still achieved a relatively fast growth of 17% year-on-year in the face of market difficulties. Terminal distributors in the customized home furnishing industry face unprecedented survival and transformation pressures, with the original sales channels facing reconstruction, difficulties in store order reception, and a significant impact on the profitability of distributors. Oppein Home has comprehensively reduced the burden on distributors, lowering various operational costs for distributors, and improving the cost structure of the distributor's profit and loss statement.
Faced with a fierce market competition environment, companies maintain their investment in market promotion and brand promotion, offering high cost-performance, special price products, and multi-category packages to benefit distributors and consumers, and enhance product competitiveness. The single-item customer order value has slightly declined, but thanks to the whole-home strategy, the average customer order value has still increased. Leading manufacturers use their financial and scale advantages to build production bases, striving to shorten product delivery cycles, continuously breaking through production capacity bottlenecks, and controlling accuracy and repair rates. While providing supply chain assurance for front-end sales, they also reduce operational costs at the factory and distributor levels.Sofia implements a multi-brand synergy development strategy, with a 27% increase in customer order value year-on-year in the first half of the year. Milana stores expand rapidly, while the number of stores for the Sofia and Schmied brands decreases significantly, but the overall single-store revenue still grows by 7.6% year-on-year.
Stable Profit Expectations
In September 2024, the People's Bank of China and the Financial Regulatory General Bureau introduced four financial support policies for the real estate sector, including improving the mortgage interest rate pricing mechanism, reducing down payment ratios, optimizing the re-lending of affordable housing, and extending some real estate financial policies. On the same day, the first-tier cities of Shenzhen, Shanghai, and Guangzhou followed suit, promoting policies to relax housing purchase restrictions and reduce down payment ratios.
As an important part of the real estate downstream industry chain, home furnishings are also encouraged by policies. Provinces and cities have successively introduced policies for exchanging old home furnishings for new ones, mainly through proportional subsidies. The subsidy amount for ordinary home furnishing products is basically between 15%-20%, with a single-item subsidy amount ranging from 2,000 to 3,000 yuan, and the subsidy for a complete renovation of each house generally does not exceed 20,000 yuan. During the National Day holiday, the work related to the exchange of old home furnishing and kitchen and bathroom equipment, as well as electric bicycles, has officially started. Changjiang Securities pointed out that the main expectations of this round of home furnishing subsidies lie in the large subsidy strength and the mature experience of home appliances that can be referred to, and the common "central initiative + local follow-up" funding structure can effectively stimulate the enthusiasm of localities to promote subsidies.
Hua Chuang Securities believes that the recent orderly advancement of local home furnishing and home exchange policies, the active layout of channel refinement and business model innovation by leading enterprises, coupled with the increased promotional efforts of various brands during the "Golden September and Silver October" consumption season, is expected to form a substantial pull on home furnishing consumption demand.
With the retreat of the real estate dividend period, new houses are gradually entering the renovation cycle. According to a conservative estimate of a 15-year renovation cycle, it is expected that the proportion of existing houses will exceed 50% by 2030, and the impact of new houses is expected to gradually decrease. The industry expects that the long-term demand of the home furnishing industry can still remain stable, and existing houses, as the new traffic of the industry, will promote the industry into a differentiation period.
In September, Oppein Home announced the profit distribution target for 2024-2026,εεδΈ, the total cash dividend paid each year will not be less than 1.5 billion yuan. Based on a market value of 30 billion yuan, the corresponding dividend yield for 2024 is about 5%.
Huafu Securities pointed out that, on the one hand, fixing the dividend amount can eliminate market concerns about business performance uncertainty and demonstrate the management's emphasis on stable returns to shareholders. On the other hand, the company has sufficient cash on hand, with a net cash position of about 9 billion yuan at the mid-year. Over the past five years, the company's average operating cash flow has been 3.5 billion yuan, and the average capital expenditure has been 1.9 billion yuan. Currently, it is expected that the capital expenditure in the next few years will be about 1.7 billion yuan, which has the financial strength to pay future dividends.
Sofia set the performance assessment target for the 2024 employee stock ownership plan as a certain growth in performance, based on the operating income and net profit attributable to the parent company in 2023. The first unlocking condition is that the operating income growth rate for 2024 will not be lower than 10%, or the net profit attributable to the parent company growth rate will not be lower than 10%. The second unlocking condition is that the operating income growth rate for 2025 will not be lower than 20%, or the net profit attributable to the parent company growth rate will not be lower than 20%. In the first half of the year, the company's operating income and net profit attributable to the parent company, excluding non-recurring gains and losses, increased by 3.9% and 13.0% year-on-year, respectively.
Seeking Development SpaceThe penetration rate of branded home furnishings in third- and fourth-tier cities remains relatively low, with most families tending to choose local home decoration companies. In recent years, leading home furnishing companies have increased their brand series and accelerated store expansion to tap into the lower-tier market, such as the Sofiya Milana series, the Oppein Euro Platinum series, and the KuKa LeHuo series, among others.
From the perspective of consumer habits, the concept of experiential and branded consumption is gradually becoming popular in the lower-tier market. The younger generation is taking the initiative in decoration, and the middle-income group is expanding. The consumption end shows a characteristic of "high-frequency + low-frequency consumption combined," which is conducive to the accelerated penetration of leading brands into the lower-tier market.
Oppein Home and its dealers are experiencing a transformation from single-product sales to a large home sales model. In the first half of 2024, the company's retail large home effective stores have exceeded 850, an increase of more than 200 compared to the beginning of the period. Oppein Home has strengthened the mid-range product matrix as its business strategy, enriching the supply of essential products. The company does not advocate using price wars that "disrupt industry ecology and development order, and vicious internal competition" to carry out competition, but instead continuously explores efficiency and benefits within the enterprise, adopting dual concessions to consumers and dealers.
Sofiya has cooperated with strong home decoration companies nationwide and encourages and promotes local dealers to cooperate with local small whole decoration, home decoration companies, and design studios to achieve mutual traffic guidance and win-win cooperation with home decoration companies. The bulk business channel mainly serves engineering customers, providing indoor home furnishing whole house customization product services for engineering customers through undertaking real estate, hotel, hospital, school, enterprises and institutions, and other model room and project batch projects, expanding revenue sources, and optimizing channel structure.
As the long cycle of home furnishing consumption enters the existing housing market, customization, as a category strongly bound to the replacement scene and decoration, traditional custom retail dealers who do not have decoration service capabilities may face more severe decoration company diversion pressure in the future. Huafu Securities believes that the difficulty of large home lies in the cultivation of dealer capabilities, while the difficulty of single-product sales lies more in traffic. For dealers with one-stop home decoration service capabilities, they can independently control the traffic entrance and undertake pure product sales while undertaking full case business.
At present, the gross profit margin range of each company in the custom home industry is stable and has not shown a significant decline, and some companies are still expanding production capacity. In 2023, Gold Home issued 770 million yuan in convertible bonds, and in 2024, Shangpin Home raised 400 million yuan in private placement, and ZhiBang Home issued 670 million yuan in convertible bonds.
The overseas market has also become a target for manufacturers in recent years. The overseas business income of ZhiBang, Gold, Oppein, and KuKa in the first half of 2024 increased by about 30%.