Key takeaway

In 2025, the company's revenue rose 8.53% YoY and net profit attributable to shareholders of the parent company grew 26.37% YoY. Domestic and export markets increased by 6.2% and 11.5%, respectively. In 1Q26, revenue rose 2.42% YoY, while net profit attributable to shareholders of the parent company declined 4.39% YoY. The profit decline was mainly due to increased marketing spending and foreign exchange losses. Against the backdrop of property market pressure and the phase-out of government subsidies, the company's domestic whole-home transformation has shown results in 2025, with standout performance in categories such as functional sofas (estimated to account for over 20% of domestic sales and maintain 40% growth). In 2025, the domestic offline business saw steady improvements in single-product gross profit contribution for major categories, the retail share of mid-to-high-end products, and the average retail transaction value. For exports, the globalized capacity layout and expansion into non-US markets continue to advance. Looking ahead, the domestic business is expected to maintain sound operating resilience through retail upgrades and penetration of high-potential categories, while the export business should deliver steady growth supported by overseas capacity deployment and category expansion.

Event

The company released its 2025 annual report: In 2025, the company achieved revenue of RMB20.056bn, up 8.53% YoY. Net profit attributable to shareholders of the parent company was RMB1.790bn, up 26.37% YoY. Net profit attributable to shareholders of the parent company after deducting non-recurring items was RMB1.629bn, up 25.13% YoY. Basic EPS was RMB2.20, up 26.44% YoY. Weighted ROE was 17.68%, up 2.96pcts YoY. The company plans to distribute a cash dividend of RMB1.38 per share (tax inclusive).

The company released its 1Q26 report: In 1Q26, revenue reached RMB5.033bn, up 2.42% YoY. Net profit attributable to shareholders of the parent company was RMB496mn, down 4.39% YoY. Net profit attributable to shareholders of the parent company after deducting non-recurring items was RMB4.10mn, down 10.6% YoY. Basic EPS was RMB0.61, down 4.69% YoY. ROE (weighted) was 4.85%, down 0.55pct.

Quick Take

In 1Q26, export growth was solid while domestic sales declined slightly. Foreign exchange losses and retail investments weighed on earnings performance. In 1Q26, the company's revenue rose 2.4% YoY. We estimate export growth remained solid while domestic sales declined slightly. Net profit attributable to shareholders of the parent company fell 4.4% YoY in 1Q26, mainly due to foreign exchange losses and expenses incurred in advancing the retail business. In 1Q26, gross margin was 33.6%, up 1.2pcts YoY. Selling expense ratio, administrative expense ratio, R&D expense ratio, and financing expense ratio were 17.2% (up 2.0pcts), 2.4% (flat), 2.1% (up 0.54pct), and 1.0% (up 1.12pcts), respectively. The increase in selling expense ratio was mainly due to the company's continued retail integration and new product launches in the domestic business. The increase in financing expense ratio was primarily due to foreign exchange losses (estimated impact of approximately RMB60mn). 25 saw dual-wheel growth driven by both domestic and foreign trade, with the domestic retail transformation showing results. In 2025, the company achieved revenue of RMB20.056bn/+8.53%, and net profit attributable to shareholders of the parent company of RMB1.79bn/+26.37%. On the profit side, the company made an impairment provision of RMB139mn for RB and Natuzzi, incurred increased foreign exchange losses, and recorded share-based payment expenses of RMB68mn. 2025 revenue breakdown is as follows:

1) By business segment: In 2025, revenue from sofas, bedroom products, customization, integrated products, and IT services was RMB11.58bn, RMB3.47bn, RMB1.03bn, RMB2.31bn, and RMB730mn, representing YoY changes of +13.4%, +6.6%, +3.9%, -5.0%, and +4.3%, respectively. The sofa business growth was mainly driven by the shipment ramp-up of functional sofa products. In December 2025, the company invested RMB245mn to acquire Dengfeng Electric, which will further enhance its motor and electronic control capabilities.

2) By region: Against the backdrop of a pressured domestic real estate market (completions down approximately 20% in 2025) and the phasing out of national subsidies, 2025 domestic sales revenue reached RMB9.94bn/+6.2% (2H25 growth was 2%), of which offline domestic trade sales were RMB8bn/+3.2% and online revenue was RMB1.935bn/+21%, mainly driven by high growth in the functional sofa category. It is estimated that functional sofas accounted for over 20% of domestic sales, with a growth rate reaching 40%. In 2025, the per-unit gross profit contribution of main categories in offline domestic trade, the retail proportion of mid-to-high-end products, and the average retail unit price all achieved steady improvement, while inventory turnover efficiency continued to be optimized. In 2025, certain blockbuster products delivered outstanding performance. For example, the functional sofa Hertz achieved retail sales exceeding RMB350mn in 2025, the Yunshu smart sofa recorded retail sales of nearly RMB150mn within three months of launch, and the 3D series mattress posted full-year retail sales of RMB360mn. In 2025, export revenue was RMB9.33bn/+11.5% (2H25 was +13%). The company accelerated its global expansion, with cross-border e-commerce revenue reaching RMB1.068bn, accounting for 11.45%. In its ODM business, the company sped up global production capacity layout and localized operations in 2025, announcing in September 2025 a planned investment of RMB1.124bn to build an Indonesia base.

Optimized expense ratios drove improved profitability, with robust cash flow performance. In 2025, gross margin was 32.76%/+0.04pct, with domestic sales gross margin at 38.35%/+1.33pcts and export gross margin at 25.84%/-1.31pcts. The decline in export gross margin is estimated to be affected by tariff cost allocation. On the expense side, in 2025, the company's selling, administrative, R&D, and financing expense ratios were 17.14%/-0.68pct, 1.86%/-0.13pct, 1.84%/+0.32pct, and 0.01%/+0.21pct, respectively. In 2025, net profit margin was 9.31%/+1.48pcts. Net operating cash flow was RMB2.774bn/+3.50%, mainly due to a year-on-year increase in notes payable and a year-on-year decrease in contract liabilities affected by the national subsidy cycle.

Looking ahead, the domestic trade retail transformation is expected to continue empowerin g domestic sales category growth, while the overseas sales end is expected to achieve steady growth under the overseas capacity layout. In 2026, the company's domestic sales will continue to pursue category-specific professional breakthroughs, such as functional sofas continuously enhancing core competitiveness, the mattress business comprehensively strengthening technology R&D, product matrix and user operations, Kuka Lohas continuing to deeply cultivate the lower-tier market, and the LAZBOY brand continuing to deepen its multi-channel layout. The company is improving its functional smart industry chain layout, promoting the integrated technology integration and product implementation of functional iron frames, motor electronic controls, and software integration, and accelerating the manufacturing process of "smart reform and digital transformation," which is expected to continuously empower the growth of various domestic trade categories. Foreign trade continues to optimize the global supply chain system. On one hand, the company continues to increase its production capacity coverage for the US, significantly shortening the delivery cycle in the North American region and strengthening investment in high-end functional product innovation. At the same time, it continues to explore non-US emerging markets.

Investment recommendation: We estimate revenue for 2026-2028 to be RMB21.54bn, 23.11bn, and 24.69bn, with YoY growth of +7.4%, +7.3%, and +6.8%, and net profit attributable to shareholders of the parent compan y to be RMB2.04, 2.25, and 2.42bn, with YoY growth of +13.9%, +10.3%, and +7.5%, corresponding to P/E multiples of 11.9x, 10.7x, and 10.0x. We maintain "Buy" rating.

Risks: 1) Raw material price fluctuation risk: The raw materials used in the company's production mainly include foaming materials (polyether, TDI, etc.), sponge, fabric, leather, wood, hardware and others. Fluctuations in the prices of these raw materials will cause production cost volatility, thereby affecting the company's revenue and gross margin. 2) Risk of intensifying domestic market competition: Under the combined influence of declining new home sales, shrinking orders and accelerating industry consolidation, small and medium-sized home furnishing manufacturers and brand operators lack the ability to compete with leading enterprises in branding, channels, product quality, service and management. In the short term, they may adopt low-price dumping strategies, triggering industry price wars and a decline in average profit margins, which could adversely affect the company's production and operations. 3) Real estate market fluctuation risk: Demand for home furnishing mainly comes from the renovation of new houses, second-hand houses and rental houses. The real estate industry is the upstream industry of home furnishing. Changes in the real estate market will have an impact on the future demand of the home furnishing industry. To further strengthen and improve real estate market regulation, stabilize market expectations, and promote the stable and healthy development of the real estate market, the government has successively introduced real estate control policies, leading to a slowdown in demand growth for commodity housing.