DONG YI RI SHENG HOME DECORATION(002713)：2021 REVENUE UP 25% YOY;INFORMATIZATION TO FUEL LONG-TERM GROWTH-格隆汇

机构：中金公司
研究员：Junhao FAN/Jiangbin RONG

　　2021 results in line with market consensus
Dong Yi Ri Sheng Home Decoration (DYRS) announced its 2021 results: Revenue rose 24.5% YoY to Rmb4.29bn; attributable net profit fell 57.0% YoY to about Rmb78mn (the firm recorded Rmb84.37mn in gains from selling real estate properties in 2020). Its recurring net profit rose 12.9% YoY to around Rmb85mn. The results are in line with market consensus.
　　The firm's revenue dropped 4.1% YoY in 4Q21 (vs. -0.03% YoY in 3Q21, +93.0% YoY in 2Q21 and +152.4% YoY in 1Q21). Its attributable net profit rose 5.5% YoY in 1Q21, turned positive in 2Q21, turned negative in 3Q21, and fell 32.0% YoY in 4Q21.
　　Trends to watch
　　Home decoration business grows steadily; public building decoration and high-end decoration businesses grow rapidly. In 2021, revenue from home decoration rose 23.0% YoY to Rmb3.70bn, accounting for 86.3% of the total revenue; gross margin (GM) of this business fell 1.7ppt YoY to 32.3%. Revenue from public building decoration rose 34.2% YoY to around Rmb330mn, accounting for 7.8% of the total revenue; GM of this business rose 1.9ppt YoY to 40.6%. Revenue from high-end decoration climbed 76.3% YoY to around Rmb130mn, accounting for 3.0% of the total revenue; GM of this business slid 2.6ppt YoY to 51.3%.
　　Rising raw material prices weigh on GM; profitability to recover. The firm's GM dropped 1.3ppt YoY to 35.0% in 2021, mainly due to rising raw material prices. In 2021, selling expense ratio rose 0.1ppt YoY to 18.1%; G&A and R&D expense ratio fell 1.2ppt YoY to 12.0%; financial expense ratio rose 0.5ppt YoY to 0.5%. Overall, the firm's net margin dropped 3.4ppt YoY to 1.8%.
　　Product upgrades and digital transformation to fuel long-term growth.
　　DYRS keeps improving its products to meet customer demand. The company has independently designed and developed over 100 integrated decoration solutions, and created a large library of decoration examples consisting of many personalized solutions based on the resources of its subsidiaries. It has also explored diversified supply channels and cooperation models. The company has about 4,700 stock-keeping units (SKUs) in the vertical supply chain for its integrated decoration products, and around 6,800 SKUs in regional supply chains.
　　Desay continues its digital transformation to improve efficiency. The company uses digital systems to ensure efficient delivery and upgrade its home decoration system to increase its on-time fulfillment rate and improve customer satisfaction.
　　Financials and valuation
　　We maintain our 2022 and 2023 EPS forecasts of Rmb0.39 and Rmb0.42. The stock is trading at 17x 2022e and 16x 2023e P/E. We maintain an OUTPERFORM rating, but lift our target price 7% to Rmb7.5 as its earnings will likely recover with the adoption of digital systems. Our TP implies 19x 2022e and 18x 2023e P/E and offers 10% upside.
　　Risks
　　Sharp fluctuations in raw material prices; fiercer industry competition; real estate regulations tighter than expected.