Sofia (002572): Q2 revenue growth accelerates optimistic about Sofia’s long-term development

Sofia (002572): Q2 revenue growth accelerates optimistic about Sofia’s long-term development
[Event]Sofia released its 2019 semi-annual report and achieved revenue 31.42 ppm, an increase of 5 in ten years.17%, net profit attributable to mother 3.91 ppm, a five-year increase of 5.96%, the increase in the next ten years is 0.39% (mainly government subsidies and investment income), and the operating net cash flow gradually decreased31.45% (related to the settlement of major projects).Looking at the quarter, Q1 / Q2 revenue growth changes were -4.67% / 12.18%, net profit attributable to mothers has increased in two years.69% / 6.84%.The company’s performance was in line with expectations, and Q2 revenue grew beautifully.  [Comment]1. The income side, home furnishings have entered a downward cycle, and Sofia has innovated products and channels to increase customer unit prices, strengthen drainage, maintain steady growth, and accelerate Q2 growth.  1) The revenue of custom wardrobes and other supporting cabinets (Sofia) is increasing every year 3.56%, including an increase of 11 in the second quarter.62%.In terms of channels, ① the distribution channels are cleaned up, and the single store revenue is good: the distribution income has increased in value for ten years2.2%. First, the overall slowdown in channel development. Sophia stores decreased by 40 to 2,470, and large home fusion stores increased by 78 to 176. Second, strengthened dealer management and control (eliminated and optimized 36) and upgraded store imageAccelerate the sampling of new products, strengthen the marketing drainage, promote the expansion of the package, and the single store revenue will be better.  ② Strengthening real estate cooperation and rapid growth in bulk: bulk income increased by 22.6%, under the trend of fine decoration, real estate developers carry out check-in, and the company cooperates with head customers such as Poly.  In terms of products, ① wardrobes increased steadily: revenue from wardrobes and accessories increased by 2.50%, store & product optimization brings growth.②Furniture of furniture and home furnishings: The income of furniture and home furnishings increases by 21 every year.13%.The company promotes the whole house design concept, strengthens the design and brings orders, and the large store model operates effectively, and the dealers are rushing out. It is expected to add value to 150 stores.  2) The overall cabinet (Smi) income increased by 12.35%, of which the second quarter increased by 12.At 01%, the number of stores increased by 15 to 837, and the number of dealers increased by 87 to 809 (80% coincided with Sophia), and more than half of the wardrobe stores were integrated with cabinets, and the linkage between Sasso and Co. was further enhanced.  Smith’s H1 net profit -0.12 trillion, a year of loss reduction of 42.91%, turnaround is expected.  3) Customized wooden doors (Sophia wooden doors, Huahe) revenue increased by 34 each year.16%, of which 33% in the second quarter.13%, Sophia’s wooden doors increased by 18 to 146 (another 46 were renovated), and 500+ dealers (basically coincided with Sofia).Wooden door H1 net profit -0.21 trillion, a loss of 22 a year.10%.  2. On the profit 南宁桑拿 side, the gross profit margin of the wardrobe is slightly under pressure, the scale effect of cabinets and wooden doors is released, and the expenses during the period are basically flat. The decline in the proportion of advertising expenses shows that the leading company is controlling the cost reduction trend.  1) In terms of gross profit, the gross profit margin of H1 has fallen by more than 1.02pct to 36.65%.① The gross profit margin of wardrobes / furniture products declined 1.27/1.80pct to 39.95% / 14.28%, the company has made great discounts since 18Q2, extended the marketing period, increased the proportion of bulk business, and the new base has a process of ramping up production capacity.② The gross profit margin of cabinets / wooden doors will be extended by 2.25/5.85pct, the main reason is that the scale effect of income expansion is obvious, and the average production capacity of Smy is increased by 10.0pct.In addition, the company strengthened informatization and digital production, extended the production scheduling cycle, shortened the efficiency improvement, and eased the delivery pressure brought by the increase in SKUs.  2) In terms of expenses, the expense ratio was basically flat during the period.Selling expenses increase up to 0.84pct to 10.99%, mainly due to the increase in employees’ salaries, while the proportion of advertising costs slightly decreased. In the industry’s down cycle, companies reduced their cost control and strengthened precision marketing.In addition, the focus of major non-recurring gains and losses on government subsidies has increased, leading to non-recurring growth in expressways.  3. The depth of the custom leader moat, channel and product innovation bring growth 1) The moat: consolidate channels, brand advantages, enjoy the concentration and increase dividends as a custom leader, integrate, spread the company’s stores, cooperate with continuous marketing to create a brand effect, andMore consumer intervention; instead, the channel layout has a first-mover advantage, with better quality dealers and better store locations, consolidating the moat.  2) Driving force: short-term completion is expected to improve, long-term optimistic about the company’s channel and product change ① In the short term, real estate sales are stable and real estate completion is picking up.In the month of July 2019, the area of real estate sales increased by more than one.17%, the growth rate turned positive, and the completed area exceeded Grade 0.62%, the rate of decline narrowed sharply.We expect real estate sales to fluctuate steadily in the second half of the year, and in the context of the mandatory delivery period, real estate completion is expected to pick up and benefit home furnishing companies.  ② In the long run, we are optimistic about the company’s efforts in channel and product transformation.  First, reform dealer management and control and enhance the execution of management strategies.The company promotes the wolf culture, maintains a high number of dealers’ elimination rate, and at the same time, the management and assessment tend to be refined, and the empowerment of dealers (store decoration, e-commerce drainage, etc.) is becoming a strategicExecution is also expected to increase.Second, launch differentiated products and strengthen design concepts.One reason for the company’s continued price reduction in the early stage is that the products correspond to rigid demand and the differentiation is not obvious.Recently, the company launched Kangchun Board (accounting for more than 20%) to develop high-end luxury products, enhance differentiation and expand customer coverage.At the same time, recognize the design concept, use the design to drive the growth of large homes, and increase the conversion rate.Third, expand diversified channels and gain access to traffic.Under the trend of fragmented passenger flow, the company has laid out new channels. Through distributors and home improvement companies, designers fully cooperate with each other to empower each other. Major customers continue to develop, and project accounting accelerates future progress. Online expansion and accelerated community expansionNew model for marketing and getting fragmented traffic.Fourth, strengthen logistics cooperation and improve expected efficiency.In the industry’s down cycle, the company controlled costs and reduced fees to ease the pressure.The aim is to improve pre-efficiency and reduce through information reform, and reduce freight pressure by cooperating with Debang Logistics.  Profit forecast: We are optimistic about the company’s competitive barriers and long-term growth capabilities as a custom leader. The company continues to attract attractiveness, and its stock repurchases continue to increase its performance.  We expect EPS to be 1 in 2019-2021.17/1.31/1.45 yuan, corresponding to 15 for PE.27/13.65/12.29X, maintain the “recommended” level.  Risk warning: Real estate sales are sluggish, competition in the industry is intensifying, and big homes are less than expected.