In the next 10 years, the annual compound expansion rate of the custom home furnishing industry should be more than 7%. It is also a high probability event that the profit level of A-share custom home furnishing companies maintains a compound growth rate of 10%. According to our understanding of valuation, a company with a compound annual profit growth of 10% has a reasonable intrinsic value of 17-18 times PE. Let’s look at the valuation levels of these companies on October 18th:
The crowns pu ceiling cornice mouldings can clearly see that market sentiment has underestimated the profit growth rate of custom home furnishing companies in the next 10 years. A leading custom home furnishing leader like Sophia has a high probability of maintaining 10% or even higher revenue and profit growth in the next 10 years. This should be a conservative estimate. We will not be as optimistic about the high growth of custom home furnishing companies as people in 2017, but we will not be too pessimistic. Market panic will create good buying opportunities.
Custom home furnishing companies without pricing power are profitable, mainly due to the low penetration rate of custom home furnishings in the Chinese market. A few years ago, few Chinese families could accept the concept of custom home furnishing. China’s current market penetration rate is only about 20%, while the US custom home market penetration rate has reached more than 60%. The industry market prospect is very broad.
The urbanization rate in China has reached 58.52%, and the annual urbanization rate has expanded by more than 1 percentage point, and it has continued for 6 years. China’s urban population is approaching 800 million, which means that China has about 250 million urban households. If 25 million households are renovated annually, the penetration rate of the custom home furnishing industry is 20%-30%, and the market capacity is 5 million-7.5 million households.
The average household consumption of a set of custom-made 2 sets of wardrobes and 1 set of cabinets in a residence is about 30,000 yuan, and the capacity of the entire custom-made home market is between 150 billion and 225 billion yuan. If 10 years later, China’s urbanization rate rises to 65% and the market penetration rate of customized home furnishings reaches 40%, the entire market may expand to 300-400 billion. The crowns pu ceiling cornice mouldings will also benefit from the expansion of the entire industry. These companies have stronger financial strength and channel resources than other companies in the industry, and they will also benefit from the increase in industry concentration in the future.
Post time: Oct-29-2020