Summary of Investment

• Interim net profit fell by 10% yoy, with short-term pressure on gross margin;
• Strong sales growth in Chinese market, and gradual improvement in European and American markets;

Historical P/E valuation

Investment Rating

Recently, the Company has acquired two target companies, namely Jiangsu Yulong and Jiangsu Delancey. Upon the completion of the acquisition, the Company will effectively enhance the production capacity and productivity in respect of the business of iron frame and functional sofa in China. We are optimistic about the Company’s endogenous growth in the Chinese market. Driven by product price increases, capacity expansion and cost control, the overall gross margin is expected to stabilize and rise. It is estimated that the net profits attributable to the parent company for 2018-2019 will reach HKD1757 million and HKD2077 million, respectively; EPS will be 0.46 and 0.54, respectively, equivalent to PE 16.2 and 13.7, respectively. The rating of “Buy” is given.