According to the Futu Securities app, a research report from GTJA Securities suggests that short-term performance of home furnishing companies is under pressure due to weak downstream demand recovery. Soft furnishings benefit from overseas recovery and replacement drivers, performing relatively well overall. Leading custom home furnishing companies are actively expanding product categories, optimizing customer structure, and promoting channel transformation, which is expected to improve performance as demand rebounds. From a cash flow perspective, the real estate industry as a whole has been weak in the first half of 2024, impacting the revenue scale of home furnishing companies. Meanwhile, material procurement, taxes, project performance bonds, and payable expenses still need to be paid, resulting in a year-on-year decline in cash flow for various companies.

Overall, terminal sales are weak and policy effects are gradually becoming evident. In the first seven months of 2024, the completion area of houses decreased by 21.80% year-on-year, residential completion area decreased by 23.70% year-on-year, sales area of commercial housing decreased by 18.60% year-on-year, and sales area of residential housing decreased by 21.10% year-on-year. According to data from CRIC, the sales amount of the top 100 real estate companies in June 2024 decreased by 21.8% year-on-year. The terminal market demand for housing and residential properties remains weak. Since May 17th, the People's Bank of China and four other departments have jointly introduced a combination of real estate policies by eliminating the lower limit of the national-level housing loan interest rate policy, reducing the down payment ratio and the interest rate for provident fund loans, and other measures to lower the threshold for residential purchases and stimulate housing consumption. Local areas are gradually adjusting and optimizing real estate transaction policies. It is expected that with the gradual implementation of these policy effects, the market will gradually stabilize and recover, driving the recovery of home furnishing sales.

The structure of bulk customers is gradually becoming more diversified, and companies are actively seeking changes in their distribution channels. In the first half of 2024, the revenue from bulk business of various companies showed differentiated growth rates. Sofia and Gold Mantis Home achieved faster growth in bulk business, while Jiangshan Oupai saw a slight decline. Companies are optimizing their customer structure by expanding into non-real estate business areas such as hospitals, hotels, and schools. In response to the transformation of terminal traffic, companies have different strategies for their distribution channels. Sofia, Holike, and Nanjing Olo Home Furnishing are relatively cautious in their store expansion, maintaining a stable or slightly streamlined number of stores, while Oppein Home Group, Xilinmen, Gold Mantis Home, and Zbom Home Collection are more active in store expansion. Under the pressure of industry revenue, companies that are more cautious in store expansion tend to perform better on a single store level. At the same time, with the trend of dispersed consumer flow, custom home furnishing companies urgently need to provide overall space solutions to convert customers. The trend of one-stop home furnishing is gradually emerging, and the extension of product categories has shown significant effects.

Customized home furnishing performance is under pressure due to downstream demand, while soft furnishings perform better due to overseas sales and replacement. Custom home furnishing is directly affected by real estate sales, and overall pressure is felt in the first half of 2024. Companies are increasing their layout of the entire home furnishing chain by integrating product categories and actively promoting the construction of e-commerce and new media channels. However, as the industry has shifted from natural customer acquisition to actively seeking traffic, custom home furnishing companies have increased their marketing expenses, but their order conversion performance is relatively weak, leading to profit pressure. Soft furnishings outperform customized home furnishing in terms of performance, with domestic sales mainly driven by natural updates and policies promoting consumption, and overseas sales benefiting from overseas demand recovery and the expansion of cross-border e-commerce platforms. Looking ahead, the outlook for soft furnishings is expected to improve. From a cash flow perspective, the real estate industry as a whole has been weak in the first half of 2024, impacting the revenue scale of home furnishing companies. Meanwhile, material procurement, taxes, project performance bonds, and payable expenses still need to be paid, resulting in a year-on-year decline in cash flow for various companies.

Investment advice: The home furnishing industry is facing short-term pressure due to weaker-than-expected downstream demand recovery. However, leading companies are expected to maintain market share through their comprehensive product layouts and multi-brand strategies, and their performance is expected to grow steadily as downstream demand recovers. Jason Furniture, Oppein Home Group, Suofeiya Home Collection, Man Wah Holdings, Zbom Home Collection, Muyuan Shares, and Xilinmen are recommended.

Risk warning: Slow recovery in downstream demand and significant fluctuations in raw material prices.