Revenue and profit both under pressure in 1H24; maintain BUY
Dare Power Dekor’s (DPD) revenue/attributable net profit (NP)/recurring NP was RMB2,377/64/55mn for 1H24 (-11.14/-37.64/-43.09% yoy), with 2Q24 revenue/attributable NP at RMB1,448/99mn (-12.37/-31.76% yoy). In 1H24, demand for DPD’s floor and manmade board businesses was dented by the property down cycle. Adding in increased expense ratios on weakened expense dilution effect due to falling revenue, DPD saw deeper decline in profit than revenue. As demand has yet to recover, we cut revenue estimates, projecting its 2024/2025/2026 attributable NP at RMB311/341/372mn (previous: RMB382/429/479mn), with EPS at RMB0.57/0.62/0.68. Given DPD’s solid leadership in the wooden-flooring sector with robust brand value, and its active progress in construction of aluminum strip and battery foil projects, we value the stock at 12x 2024E PE, vs its peers’ average of 8x on Wind consensus. Our target price is RMB6.84 (previous: RMB9.10). BUY.
Wood flooring revenue down yoy, plat revenue rose yoy
1) Wood flooring: revenue fell 22.86% yoy to RMB1,405mn in 1H24, which we attribute to soft retail demand and intensified market competition. 2) Plate: revenue from medium- and high-density plates rose 3.59% yoy to RMB583mn in 1H24, as DPD’s continued efforts to enhance R&D and build differentiated products improve customer stickiness. 3) Revenue from bamboo & stone plastic flooring/wooden doors & cloakroom increased 38.21/21.90% yoy to RMB349/20mn in 1H24. Overall, the company’s revenue was adversely affected by sluggish demand amid property downcycle. We expect subsequent improvements in its operations.
Profitability under pressure, expense ratio rose yoy in 1H24
In 1H24, sales GPM fell 0.44pp yoy to 25.89%, which we put down to intensified competition and changes in business mix. The overall expense ratio climbed up 2.16pp to 23.32%. Sales/administrative + R&D expense ratios rose 2.16/0.73pp yoy to 10.23/13.47%, albeit with a drop in the amount of expenses, mainly due to weakened expense dilution effect on falling revenue. The financial expense ratio rose 0.60pp yoy to -0.38%, owing to a yoy fall in forex gains. Overall, NPM in 1H24 was down 1.38pp yoy to 2.42%.
Risks: weaker demand recovery than we expect; raw material price hikes; and disappointing expansion of new initiatives.