China’
s customized furniture industry – though facing headwinds from a property
downcycle and intensifying competition, especially in the furniture mall channel –
offers a significant consolidation opportunity in a vast, yet fragmented, market.
Going forward, we expect industry leaders to gradually, but consistently, gain share
from smaller players. We expect industry leaders, which enjoy manufacturing and
distribution advantages, to benefit from the rising portion of furbished new
properties, accelerating their market share concentration.
Developers’ channel: Long-term revenue opportunity for leading players
A
ccording to All View Cloud (AVC), c. 4.6mn units of furbished new properties were
sold in 2018, 23% of the total new properties sold. The number is expected to rise to
6.1mn by 2020E based on the 13th Five-Year Plan. In comparison, Suofeiya, a leading
wardrobe manufacturer, only had 0.6mn customers in 2018. Hence, we believe
capturing even a small portion of this growing segment will translate into
considerable growth for furniture companies. Furthermore, we expect stringent
requirements on product specifications, delivery time and payment period will
mainly benefit large players with superior financial and distributor resources.
Initiating on two market leaders; reiterate Buy on Suofeiya with 34% upside
We expect Oppein, a dominant player in kitchen cabinets and the developers’
channel, to grow revenue/net profit by 16%/13% CAGRs in 2019E-20E, driven by: 1)
category expansion; 2) per-store sales growth; and 3) continued investment in
manufacturing expansion. However, with the shares trading in line (6%
downside) with our 12-month discounted EV/EBITDA-based target price of
Rmb82.0, we initiate at Neutral. Guangzhou Shangpin has differentiated itself with
more direct-owned and shopping mall based stores, and a large revenue contribution
from outsourced products. However, given relatively less differentiation in its
furniture products, we expect revenue growth to decelerate sharply in 2019E, posing
downside risk to the currently high valuation. We initiate at Sell with a 12-m
discounted EV/EBITDA-based target price of Rmb49.0, implying 21% downside.
We continue to favor Suofeiya for its industry-leading manufacturing capabilities and
distributor network. Reiterate Buy with 34% upside potential.
Nicolas Yi
+86(21)240
1-8922 | nicolas.yi@ghsl.cn
Beijing Gao Hua Securities Company
Limited
China Consumer Durables
Customized furniture: Setting the table – Initiate Oppein
at Neutral, Shangpin at Sell; reiterate Buy on Suofeiya
19 December 2018 | 8:06PM CST
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