Xilinmen Furniture Strong earnings results powered by sturdy growth momentum

This report must be read with important disclosures and analyst certifications located on the end of the report. 1 Equity Research Report Xilinmen Furniture (603008 CH) Strong earnings results powered by sturdy growth momentum Huatai Research Annual Results Review Rating (Maintain): OVERWEIGHT Target price (RMB): 36.67 21 April 2022 │ China (Mainland) Household Products Strong earnings results; attributable net profit grew 78.3% yoy Xilinmen Furniture released 2021 annual results, posting revenue of RMB7.77bn (+38.2% yoy) and attributable net profit of RMB559mn (+78.3% yoy, slightly above our estimate of RMB552mn). For the main furniture business (excluding the impact of the film and TV business, which was divested in 2021), revenue/attributable net profit/recurring attributable net profit would have grown 45/71/51% yoy. We expect 2022E/2023E/2024E EPS of RMB1.93/2.58/3.41. As we feel its proprietary brands have clear competitive advantages and have performed well, we value its stock at a 19x 2022E PE, a premium over the Wind consensus-based peer average of 14x, for our target price of RMB36.67. Maintain OVERWEIGHT. Proprietary brands: their retail business achieved solid results In 2021, Xilinmen’s proprietary brands logged revenue of RMB5.17bn from their retail business, up 65% yoy. Their offline revenue grew 65% yoy to RMB4.08bn (Xilinmen/M&D and Chateau d’Ax earned RMB3.43bn/649mn, up 77/23% yoy). Online revenue came in at RMB1,098mn, up 63% yoy. Also, Xilinmen brands actively expanded their hospitality client base and innovated cooperation models, growing revenue from this segment by 9% yoy to RMB470mn. The OEM business established solid relationships with well-known companies both at home and abroad (including IKEA), contributing RMB2.13bn in revenue, up 19% yoy. Profitability improved steadily; sales NPM up 1.55pp yoy in 2021 In 2021, the company’s sales GPM declined 1.76pp to 32.0%. Excluding the impact of freight in 2020, the GPM would have grown 1.67pp yoy. In 2021, the period cost ratio declined 2.01pp yoy to 22.43%. In particular, the sales expense ratio decreased 0.77pp yoy to 15.36%. Together, these factors helped the sales NPM increase 1.55pp yoy to 7.79%. Proprietary brands’ retail business continued to grow; OVERWEIGHT The company’s high-GPM proprietary brand businesses have increased their revenue share, so we raise our GPM forecasts for its bed mattress and other businesses. We expect 2022E/2023E/2024E attributable net profit of RMB0.75/1.00/1.32bn (previous: RMB0.72/0.93bn for 2022E/2023E) and EPS of RMB1.93/2.58/3.41. As we feel its proprietary brands have clear competitive advantages and have performed well, we value its stock at a 19x 2022E PE, a premium over the Wind consensus-based peer average of 14x, for our target price of RMB36.67 (previous: RMB44.88, based on a 24x 2022E PE; peer average of 18x). Maintain OVERWEIGHT. Risks: uncertainties over ongoing COVID developments; raw material price volatility; a weaker channel expansion than we expect. Analyst ZHOU Xin SAC No. S0570520090001 SFC No. BQQ697 zhou.xin@htsc.com +86-21-28972050 Analyst LIU Siqi SAC No. S0570121070181 SFC No. BSE590 liusiqi@htsc.com Key data Target price (RMB) 36.67 Closing price (RMB as of 19 Apr) 27.05 Potential upside -/+ (%) 36 Mkt cap (RMBmn) 10,480 6m avg daily val (RMBmn) 132.85 52wk price range (RMB) 22.50-39.03 BVPS (RMB) 8.26 Share performance Source: Wind Financials YE 31 Dec 2020 2021 2022E 2023E 2024E Revenue (RMBmn) 5,623 7,772 9,573 11,821 14,673 +/-% 15.43 38.21 23.18 23.48 24.13 Net profit (RMBmn) 313.40 558.75 749.34 1,001 1,323 +/-% (17.61) 78.29 34.11 33.54 32.22 EPS (diluted, RMB) 0.81 1.44 1.93 2.58 3.41 ROE (%) 11.07 17.88 19.34 20.53 21.35 PE (x) 33.44 18.76 13.99 10.47 7.92 PB (x) 3.56 3.28 2.65 2.12 1.67 EV EBITDA (x) 15.95 11.04 8.39 5.88 4.68 Source: Company announcements, Huatai Research estimates (11)(6)06112227313640Apr-21Aug-21Dec-21Apr-22(%)(RMB)XilinmenRel. to CSI300 (rhs) This report must be read with important disclosures and analyst certifications located on the end of the report. 2 Xilinmen Furniture (603008 CH) Fig.1: Xilinmen Furniture PE-Bands Fig.2: Xilinmen Furniture PB-Bands Source: Wind, Huatai Research Source: Wind, Huatai Research (50)(25)02550Apr 19Oct 19Apr 20Oct 20Apr 21Oct 21(RMB)Xilinmen5x10x15x20x25x013253850Apr 19Oct 19Apr 20Oct 20Apr 21Oct 21(RMB)Xilinmen1.6x2.4x3.3x4.1x5.0x dVdVnWJYpOqR6M8Q9PtRqQtRmOjMpPmQfQoMoN8OqRtQuOmNtQuOmRpN This report must be read with important disclosures and analyst certifications located on the end of the report. 3 Xilinmen Furniture (603008 CH) Full financials Balance sheet Income statement YE 31 Dec (RMBmn) 2020 2021 2022E 2023E 2024E YE 31 Dec (RMBmn) 2020 2021 2022E 2023E 2024E Current assets 5,118 4,710 5,830 7,356 8,996