SUOFEIYA HOME COLLECTION(002572)：IMPAIRMENT PROVISION TO WEIGH ON 2021 RESULTS;PRESSURE TO EASE IN 2022

What's new
Suofeiya Home Collection preannounced that it expects revenue to grow 20-25% YoY in 2021 to Rmb10.02-10.44bn, attributable net profit to fall 87.4-91.6% YoY to Rmb100-150mn, and recurring attributable net profit to drop 93.3-98.1% YoY to Rmb20-70mn, all missing our expectations. The firm’s preannounced 2021 revenue exceeds Rmb10bn due to its omnichannel presence and multi-brand & full-category product portfolio. However, the firm’s profits are likely to fall dramatically due to the substantial provisioning for credit impairment losses in the accounts receivable, as per the announcement. We expect profits to grow in 2022 as provisioning for impairment is made and operations gradually improve.
Comments
Loss in 4Q21 due to provisions for impairment loss; to recover gradually. According to the median value of the firm’s preannouncement, 2021 revenue will rise 22.5% YoY to Rmb10.2bn and attributable net profit fall 89.5% YoY to Rmb125mn. Suofeiya expects 4Q21 revenue to drop 8.3% YoY to Rmb2.99bn and an attributable net loss of Rmb720mn. We attribute this to large-scale default on maturing bank acceptance bills by major clients of the wholesale business and their related companies in 2H21. As of end-2021, t receivables and goods in transit totaled Rmb1.19bn (Rmb460mn in accounts receivable, Rmb340mn in unexpired bank acceptance bills, Rmb350mn in advances paid for property projects, and Rmb30.16mn in goods in transit). Thus, we expect the 2021 provisioning for credit impairment losses to rise to about Rmb900mn vs. 2020.
Coordinated development under omnichannel strategy; earnings likely to recover in 2022. 1. Retail business: The firm gradually optimized the layout of stores and store efficiency, improved operational efficiency, and upgraded distributor services. We expect per customer sales and sales volume to improve steadily in 2022. 2. Home decoration business: Suofeiya promoted in-depth cooperation with top home decoration firms and strengthened synergy between distributors. We expect revenue from the home decoration business to continue ramping up in 2022, becoming a new growth driver. 3. Wholesale business: The firm optimized customer structure and strengthened risk control. We expect the wholesale business to grow steadily in the next two years.
Improving brand portfolio; unleashing potential to stabilize profitability. 1. Brand building: Suofeiya gradually improved its brand portfolio, broadened the brand coverage and target customer base. The firm is implementing a strategy of providing custom furniture for the entire home and opening more home decoration stores for the main Suofeiya brand. The firm’s new brand Milana had a good start in 2021, and we expect its revenue to grow steadily in 2022. 2. Operations: The firm hopes to unleash operational potential to cut cost, improve efficiency, and adjust prices to stabilize its gross profit. We expect the cost pressure from raw materials to ease if their prices fall in 2022.
Valuation and recommendation
Given the substantial provisions for credit impairment loss in 2021, we lower our 2021 EPS forecast 90% to Rmb0.14 but maintain our 2022 forecast at Rmb1.54. We introduce 2023 EPS forecast at Rmb1.80. The stock is trading at 14x and 12x 2022e and 2023e P/E. We maintain OUTPERFORM rating and our TP of Rmb24 (implying 16x and 13x 2022e and 2023e P/E) offering 11% upside.
Risks
Volatile raw material prices; intensifying competition; tighter-than-expected real estate regulations.
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   【免责声明】本文仅代表第三方观点，不代表和讯网立场。投资者据此操作，风险请自担。