BDA-老虎基金索菲亚定制研究报告EN-2017 01 15

BDAReportonSuofeiya(002572.SZ)January15,2017ExecutiveSummaryCompanySnapshotAddressableMarketSizeCompetitiveEdgeEconomicsAnalysisForecastModelWardrobeOthersKitchenCabinetTotal4272131051101207120Customized29CustomizedandTotalAddressableFurnitureMarketSize,2016Unit:RMBBNCustomizedPenetration26.4%67.7%9.5%ThecustomizedfurnituremarketinChinaisestimatedtobeRMB120BNaccountingfor28%ofthetotalfurnituremarket;specifically,thepenetrationforcustomizedwardrobe,kitchencabinetandothersarearound26.4%,67.7%,and9.5%respectivelyCustomizedfurniturestillhasrelativelylowpenetrationasfinishedproductsstilldominatethemarketandtheconceptisnotyetwidespreadamongmostmiddle-classcustomersEducatingthecustomersandincreasingtheirawarenesswillbethekeydriversforlong-termgrowth904520183884402017142292393520161202071297820222739511366202177104582020212629852162201918449+15%OtherCabinetsKitchenCabinetWardrobeCustomizedFurnitureMarketForecast,2016–2022FCAGR2016-22Multiple,2022/1614.6%2.3x8.1%1.6x29.3%4.7xUnit:RMBBNForthelong-term,thecustomizedfurnituremarketisexpectedtoreachRMB273BNin2022F(CAGR15%),withashiftingdecorationdemandtowardsexistingrenovationandanincreasingcustomizationpenetrationfromtradingup;accordingly,wardrobe,kitchencabinetandothercabinetshave2.3x,1.6xand4.7xupsidepotentialsrespectivelyRealEstateFluctuationsFailuresinCategoryExpansionShot-termRisksforCustomizedFurnitureMarketAsprimaryhousestillaccountsformorethanhalfoftotalhomedecorationdemand,anyunexpectedorsuddendropintherealestatemarketwouldbedetrimentaltotheshort-termcustomizedfurnituremarketgrowth,thoughthelong-termcorrelationisgraduallyweakeningLackofIndustryStandardsCustomizationofwardrobeandkitchencabinetshavebeenprovenwhilesomedoubtremainsaboutfurthercategoryexpansionorwhetherthecurrentautomationequipmentandtechniquescouldbeeasilyappliedtoothersegmentsCustomizedfurnitureisanemergingmarketandmostofthestandardsandregulationsareyettobeformed321Meanwhile,short-termdownsidesforthebusinessmaybefluctuationsintherealestatemarket,failuresincategoryexpansionandthelackofindustrystandards;thebusinesswillgraduallymovefromreal-estatesensitive(higherexposuretorealestatetransactions)tomacroeconomicssensitive(higherexposuretoexistingrenovation)inthelong-runThemarkethasbeenmoderatelyfragmentedwithmanylocalsmallplayers;inrecenttimes,threeplayersquicklyemergedasT1group,leavingpeersfarbehind,thankstotheirstrongbrandawareness(fromfirst-moveradvantage&rapidchannelexpansion)aswellasthehugecapexinvestment(tosupportmassproduction)MarketShareDynamicsofCustomizedFurniture,

2013

-

201618.3%26.5%

TOP3T1playershaveestablishedstrongbrandimageamongcustomersBrandingcultivationisofforemostimportanceasconsumersoftenmakedecisionsbasedontheirbrandingperceptionssincetheymayhavelittleprofessionalknowledgeaboutfurnitureselectionAfter~10yearsofoperation,tier1companiesarealreadyrootedinconsumers’minds;whenthinkingofcustomizedwardrobeandkitchencabinet,SuofeiyaandOppeinarethefirsttoberememberedbymostconsumersTheirreputationinthespecializedareaallowsthemtoexpandAOVandtoincreasereferralsfromword-of-montheffectsConsumersmayconsultormakedecisionsbasedontheexperienceofrelativesorfriendswhohaveinstalledcustomizedfurniturebefore;apositiverecommendationiscriticalforconsumerstomakefinaldecisionsSPZPproposedtheideaofhomecustomization.Givenitslong-standingin-homedecorationdesignsoftwaremarket,consumershavecometoaccepttheidea

MassproductionensuresthefulfillmentoforderswhenstrongbrandingbringsaboutalargenumberofordersWithmassproduction,thelargeamountoforderscanbecompletedMassproductioncanguaranteetheconsistentuserexperience,whichwillstrengthenbrandingQuality:Theautomaticmassproductionsetspreciserequirementsforeachorderandoffersrigidqualitycontrol,thusisabletodeliverconsistentqualityproductsPunctuality:ThehighoperationefficiencyofmassproductionshortenstheproductiontimeandconsumersreceivetheirorderonscheduleMassproductionsavesperunitcostsbyreducinglaborandoptimizingyieldrate;thesavingscanberedirectedintotheadsbudgettocontinuebuildingthebrandFrontendSales:TrafficBoomDrivenbyStrongBrandAwarenessBackendManufacturing:SufficientSupplywithConsistentQuality2016Oppein(KitchenCabinet)OthersOppein(Wardrobe)SPZPSuofeiya81.7%201373.5%T3T2T1T0CapexInvestmentUpwardMigrationBarrierDifficultyforUpwardMigrationCapex&

BrandingBrandCultivationT3

players

still

relyondoingthework

manually,and

manpoweralone

isinsufficientas

increasing

demand

andvolume

scale

up

Most

difficult

to

overcomeMost

easy

to

overcomeCapex

investment

is

relatively

affordable

as

domestic

companies

canprovide

the

equipment

for

customized

production

at

reasonable

prices

T1

players

have

already

updated

to

high

level

of

mass

production

and

have

relatively

strong

national

brand;

thus,

T2

players

have

to

catch

up

on

both

capex

investment

and

branding

sidesCapex

investment

cancost

a

fortune;oneproductionlinefromHOMAGcostsRMB~10MN,rulingoutmanywould-beplayersduetoinsufficientfunds

T0playersarepositionedashigh-endbrandstargetingthewealthyclass;brandingisthemainbarrierforT1migrationUpwardmigrationisachievedthroughablendofenhancingone’sbrandandmakingupgradesinautomatedproductionThereishighbarrierfortheT2toT1migrationgiventhatrepositioningbrandstakestimeandrealizingmassproductionathighefficiencycostscapital

Cultivatingbrandimageisalong-termprocessrequiringconsistenteffortstoeducateconsumersWereckonthatT1playerswillcontinuetotakeshareinthenear-term;theentrybarrierfromT2/3toT1remainshigh,sinceupwardmigrationrequireslargecapexinvestmentandlong-termaccumulationofbrandimageHigh-endluxurybrandstargetingwealthyclass

Nationalwell-knownbrandsforuppermiddleclassLimitedbrandingimageforlow-to-middleclassManylocalbrandsforprice-sensitivecustomersAmongtheT1group,SPZPisapioneerof“CustomizedHome”whileSuofeiyaandOppeincloselyfollowsbytransformingfromverticalleaderstoall-roundplayers.WebelieveeachT1playershavetheirownspecifictargetcustomerbaseandSuofeiyahasitsadvantagesinbrand,qualityanddesign,takinganarrowleadCompetitivenessKPCKPCPerformanceofCustomizedFurnitureProvidersBrandPriceDesignQualityServiceSignificantInsignificanceGiventhefirstmoveradvantageandaggressivePOSexpansion,SuofeiyaandOppeinhavebuildhigherawareness;SPZPisworkingontheonlinemarketingchanneltocatchupSuofeiyaandOppeinareperceivedtobehigherpricedgiventheirhigh-endbrandpremium;SYZPcanprovideproductsatwiderpricerange,thusmoreaffordableSuofeiyahasbetterdesigncapabilityintermsoffurniturefunction,butitiseasytobeimitated;SPZPismorecreativeinoutlookdesignSuofeiyaoffershigher-qualitygoods,asitsbettermaterial,maturecraftandhighlyautomaticmassproductionThereisnobigdifferencebetweenservice.SPZPstandsoutwhenitcomestothedesignvisualizationduetoitsadvancedsoftware.Suofeiya’smaturedistributormanagementenablesgooduserexperienceMostCompetitiveLeastCompetitiveWardrobe

andOtherFurnitureKitchenCabinetMarketShareForecast,2016-2022FBDAAnalysis20.0%18.2%19.2%19.5%18.5%19.7%19.9%MarketShareForecastWeforecastSuofeiyacouldgainsharethankstoitswell-positionedbrandawareness,superiorqualityandhighrecommendationwilinessfromexistingcustomersThreatsfromsmallplayersarelimitedastheylacktheabilitytoexpandconstrainedbysupplyside(highcapexforautomationproduction),however,thecompetitionfromleadingplayersmayintensify5.5%1.1%3.7%4.5%2.3%4.9%5.3%SuofeiyahasleveragedcurrentwardrobedistributionsystemtopromoteSchmidtCabinet,andithasexhibitedstronggrowthmomentumHowever,Suofeiyaisanewentrantandstillaccumulatingtheknow-howontheproductdesign,qualitycontrolandserviceofferings;wedeemitcannotcatchupwithleadingkitchencabinetplayerOupaiintheshortterm14.0%8.1%11.2%12.2%9.6%12.9%13.5%OverallMarketShareSource:BDAinterviewandanalysisAssuch,BDAforecaststhemarketshareforSuofeiyaincustomizedfurnituremarketwillbeliftedfrom8.1%to14.0%thankstoitsstrongbrandingpoweraswellasitsmanufacturingexpertise…CustomizedFurnitureMarketPotentialsSource:BDAforecastandanalysis201922.582%18%18.183%17%2017201887%13%2016+26%13.5WardrobeandOthersKitchenCabinet202238.284%16%202132.383%17%82%202027.318%9.792%8%RetailSalesofSuofeiya,2016–2022FCAGR2016-22Multiple,2022/1642.2%8.3x23.7%3.6xUnit:RMBBN…andSuofeiya’stotalretailsaleswillamounttoRMB38.2MNin2022F,witha3.9xupsidepotential;kitchencabinetsoutpacewardrobegrowthgiventhesmallerbaseEconomicswise,Suofeiyamainlyleveragesdistributorstoacquireandservecustomersatthefrontendwhilebeingresponsibleitselfforproductdesignandmanufacturing;bothpartiesbearlittleinventoryandaccountperiods(assetlightmodel).Therefore,Suofeiyashares45%ofsaleswithdistributorsandkeeps10%asprofit.1.8

(10%)1.9

(11%)6.2

(34%)9.9

(55%)8.1

(~45%)AOVRev.SharedwithDistributors(Distributors’Sell-in)Rev.ofSuofeiyaCOGSOPEXOperatingProfit-=--=Unit

EconomicsofaTypicalSuofeiyaOrderKey

ComponentsUnit

EconomicsAssessmentonMarginImpactUnit:RMBKGP:38%GP:18%1234AssesswhetherSuofeiyacouldincreasetheAOVeitherbypricehikeforindividualitemsorthroughcategoryexpansionAssesstheeconomicsofdistributorsandanalyzetheprofitsharingmechanismbetweenSuofeiyaanditsdistributorsAssessifthereareanypotentialsinwhichSuofeiyacouldfurthersqueezedistributors’profitAssessifSuofeiyacouldfurtherlowermanufacturingcoststhroughhigheradvancedmanufacturingprocessesorlargereconomiesofscaleAssesswhetherthebusinessstillrequireslargecapexinvestmentsAssess

theeconomicsofonlinecustomeracquisitionanditsimpactonmarginsLookingforward,SuofeiyaisabletofurtherelevateprofitabilityviaimprovingAOV,reallocatingprofitwithdistributorsaswellasloweringlabor&materialcosts;however,anincreasing%ofonlinechannelmayadverselyaffectmarginsAOVDistributors’EconomicsCOGSandCapexOnlineInvestmentRationaleImpactonMarginPotentialImpactonSuofeiya’sMarginAOVincreasebycategoryexpansion:Pricesforindividualitemswillcontinuetodeclineduetotheintensecompetition;however,AOVwillbelifteddrivenbyexpansionofpurchasescopeandincreasedpopularityofwholehousecustomizationAdequateroomforimprovementbutunfeasible:Suofeiyahasallocatedalargerproportionofprofittodistributorsinreturnforrapidexpansion;however,itmayfaceoppositionwhensqueezingdistributors’profitgiventheirstrongbargainingpower(onedistributorpercity)andrelativelylargeinfluence(biggestdistributoraccountsfor10-15%totalvol.)Moderatebenefitsfromeconomiesofscale:Improvementsinmanufacturingarelimitedgiventhealreadyhighlevelofproductionautomationandrawmaterialutilizationrate;furtherpossibilitiesexisttolowerlaborandrawmaterialcoststhroughITsystemenhancementandconsolidatingpurchasingCashburningforbranding:Economicsforonlineusersarepoorgiventhehighacquisitioncostsandlowconversionrate,AOVandrepeatfrequency;however,successiveinvestmentisinevitableasonlinechannelsareincreasinglyimportantforacquiringonlinecustomersaswellasforbrandingMostPositiveImpactWorstNegativeImpact1234ExecutiveSummaryCompanySnapshotAddressableMarketSizeCompetitiveEdgeEconomicsAnalysisForecastModelDistributors:Suofeiyamainlysellthroughexclusivedistributors,whichrepresent91%ofitswardrobeandaccessoriessalesSuofeiyaHomeCollectionCoLtd.(002572.SZ)isoneofthelargestcustomizedfurnitureprovidersinChinaWardrobe-driven:

well-knownfor

itsspecialtyinhigh-qualitywardrobesNationalcoverage:well-establishednationaldistributionnetworkBasicInformationofSuofeiyaCustomized:designedaccordingtocustomers’preferenceofsize,colorandmaterialsHighlightsoftheMainBusinessModelSource:Companyinfo,BDAinterviewandanalysisEstablishedYear:2003Ticker:002572.SZHeadquarters:GuangzhouRevenue:RMB3,176MN(2015)No.ofDistributedOutlets:1,750(asofSep16)MainBusiness:designandmanufacturingcustomizedwardrobe,cabinetandfloorstoitsdistributorsordirectlyselltolargerealestatedevelopersKeyPersonnelandtheirShareholding:Chairman:JiangGanjun(24.26%),GeneralManager:KeJiansheng(19.18%)Thecompanystartedmakingfloors&wardrobesinGuangdongin2003.After10+years’development,ithasexpandedbusinessintocustomizedfurnitureandestablishedastrongnationalpresencethroughdistributorsSuofeiya’sMajorDevelopmentMilestones20032005201520112013Initiatedtheconceptof“customwardrobe”InitialPeriodRapidGrowth&BrandBuildingCategory&ChannelExpansionSource:Companyinfo,BDAinterviewandanalysisFoundedinGuangzhouIPOwithCapitalEdgePromotedCustomized

Home

Concept

Entered

Kitchen

Cabinet

MarketProduct

ExpansionChannel

DevelopmentProduction

CapacitySuofeiyastartedbysellingcustomslidingdoorsandflooringproductsMainly

Guangzhou

and

South

ChinaBeganproductionin2003;mostlyhandmadeandinferiorinautomationatearlystagesEnteredthecustomizedwardrobemarketandextendedfurtherintootherrelatedbedroomfurnitureExpandedintotier1,2andaffluenttier3citiesbybuildingrecruitingnationaldistributorsOpened

directlyowned

flagship

storesStartedlargescalemanufacturingUpgraded

the

production

line

by

introducing

HOMAGequipmentandinformationsystems,transformingtoadvancedautomationproductionExpandedfurtherintowholeroomcustomizationandenteredinthekitchencabinetmarketthroughpartnershipwithFrenchplayerSALMS.A.S.BrandingBuild-upUnknownplayerwithlittlefameGraduallybuildreputationthankstoitsfirst-moveradvantagesDistantleaderincustomizedwardrobewithstrongnationalpresenceFurtherpenetratedintolowertiercitieshavingalreadybuiltastrongnationalpresenceSuofeiya

mainlyleveragesdistributorstoacquireandservecustomersatthefrontendwhilebeingresponsibleitselfforproductdesignandmanufacturing;bothpartiesbearlittleinventoryandaccountperiods(assetlightmodel)ProductDesignCustomerAcquisitionandSalesManufactureAfter-salesServicesParticipantsResponsibilitiesDelivery&InstallmentSource:BDAinterviewandanalysisSuofeiyaandDistributors’RolesAlongtheValueChainSuofeiyaDistributors

Suofeiyadesignsitswardrobecollectionsandtrainsthedesignersindistributors’storesSuofeiyaoperatedonlinee-commercestoresanddirectedtraffictoofflinedistributors’storesDistributorsaremainlyresponsibleforapproachingcustomersandconvertingintosalesDistributorsconfirmtheorderandsendittoSuofeiya;SuofeiyacompliestheordersandconductstheproductionProductsaresenttodistributors’warehouses;distributorsdelivertheproducttocustomers’homesandhelpassembleon-siteDistributorsareresponsibleforproductwarranty,repairandmaintenanceserviceServicesandTransactionFlowCustomersDistributorsSuofeiyaShowroomConsolationIn-houseMeasurementDesign&QuotationConfirmingOrderPayFullAmountOrderPlacementPayFullSell-inPriceOn-siteAssemblyDeliveryManufacturing

ResponsibleNotresponsibleServiceFlowTransactionFlowSource:Companyinfo,BDAanalysis3,176+36%201520142,34620131,77220121,21320119922010684YoY45.2%22.2%46.1%32.4%35.4%SuofeiyaRevenue,2010-2015Unit:RMBMN88%96%201292%20112010201397%1%98%201497%2015WardrobeandRelatedProductsFloorKitchenCabinetRevenueBreakdown,2010-2015Suofeiyageneratedrevenuefromwholesalestodistributorsandachievedrobustgrowth(+36%CAGR)inrecenttimes,withwardrobeaccountingforthebulk(97%oftotal)Specificallyforwardrobe,thestronggrowthmomentum(+39%CAGR)isachievedbybothPOSGandSSSG(+22%and+12%CAGRrespectively)RevenueofWardrobeandOtherRelatedCabinets,2010–2015Unit:RMBMNYoYOthers22.2%13.0%38.8%32.3%32.8%Distributor56.7%29.0%49.6%33.9%33.3%Overall45.2%22.2%46.1%32.4%35.4%Source:Companyinfo,Equityresearch,BDAanalysis+39%Distributors1,16120151,7243,0742,3062014Others120132012201191220106009%86%9%89%9%90%10%91%11%91%14%91%Note.1:“Others”includessalesfromdirectlyownedstores,salestorealestatedevelopersandexport;2.Suofeiyadoesn’tdisclosethesalesandunitcountfordirectlyownedstores.No.ofWardrobeDistributedOutlets2atYearEnd,2010–2015SingleStoreSell-inValue,2010–2015+2012+22%20152013201420112010YoY37.5%25.0%20.0%20.8%10.3%Unit:#2014+12%20151.8420131.581.4320121.1620111.18YoY-1.0%22.4%11.2%15.8%Unit:RMBMNDuringthisperiod,Suofeiya’smarginshavesteadilyincreasedasthevolumescaledup,yetitsnetcashflowremainednegativeduetothehugecapexinvestmentSource:Companyinfo,BDAanalysis18.3%37.7%16.1%37.2%15.3%36.9%14.5%34.9%14.1%33.8%MarginofSuofeiya,2011-2015CashFlowofSuofeiya,2011-2015GrossMarginOperatingMarginUnit:RMBMNCashFlowFromOperationCapexExpenditure20122015201420132011-CFO-Capex=ExecutiveSummaryCompanySnapshotAddressableMarketSizeDefinitionofCustomizedFurnitureCurrentMarketSizeBuild-upLong-termSizingPotentialsCompetitiveEdgeEconomicsAnalysisForecastModelTobetteridentifySuofeiya’saddressablemarket,firstweneedtodefinetheterms“Customized”and“Furniture”;“Customized”furnituredifferentiatesitselffromfinishedorhandmadeproductsthroughaprocessinvolvingin-housemeasurementandtailor-madeservicesatthefrontendandlarge-scalemanufacturingatthebackend…CustomizedFurnitureFinishedFurnitureCarpentersFrontendServices(customizationorstandardization)BackendManufacturing(industrializationorhandmade)Advantages&disadvantages(Functionality/Price/Convenience)Customizeddesignandtailor-madeservicesIn-housemeasurementbeforeproductionMajorPlayersCustomizeddesignbycarpentersbutwithlimitedoptionsFurnitureProductionandSalesModelsStandardizedpre-madeproducts

asthemodulesforeachpieceoffurnitureispre-determinedandfixedFlexiblemanufacturingwithadvancedequipmentandITsystemstoachievehighlevelofefficiencyStream-linemanufacturingwithlargeeconomiesofscaleHighspaceutilizationbyincreasingthestoragespaceandaddingmoresophisticatedinnermodulesTailor-madedesignconsistentwithentirehomedecorationstyleHighestpriceswithrelativelylongproductionperiods(~10-15days)Attractivepricesbylarge-scalestandardizedproductionQuickservices,saveswaitingtimeasfurnitureispre-madeLimitedselectionsandcannotsuitcustomers’specialdecorationneedsHandmade

bycarpentersbutqualityisnotguaranteedCheappricesbutatthecostoflowqualityandinferiorrawmaterialsSource:BDAanalysisBedroomKitchenLivingRoomBathroomChineseDecorationHabitsSub-categoryAddressableorNot?PreferredMaterialsFunctionalitySource:BDAinterviewandanalysisWooden-basedfurniture(contributes~60%oftotalfurniture)issuitableforcustomizationasitcaneasilybecutintodifferentsizes,andtheseshapesareassembledintodifferentmodulesFromdemandperspective,furnituretomeetstoragefunctionaremostsuitableforcustomizationascustomershavetheneedtoincreasetheoverallhomeutilizationrateFeasibilityofCustomizationbyFurnitureItemsCabinetsBookshelfTVstandsTables&DesksChairsMostlywoodenmaterialsStorageStoragestorageWardrobeNightstandBeds(Mattress)WoodenWoodenMetalorWoodenStoragedrivenStoragedrivenRestingNeedsKitchencabinetsStovesWoodenMetalStoragedrivenCooking

CeramicsCleaning&storageWashstandandcabinets…whileintermsof“Furniture”,wardrobe,kitchencabinetsaswellasotherwooden-basedfurniturewithstoragefunctionsarewidelyconsideredastheaddressablemarketconsideringthefunctionalityvs.ChinesedecorationhabitsEating&WorkingResting

Typically,Chinesehousesdon’tincludeanybuilt-inclosets,thusconsumerswillpurchasethewardrobeinbedroomandcabinetsinthekitchentomeetstorageneedsPreferone-stopdecorationservicesforconvenienceFocusonexternalappearanceanddeemthedecorationasanreflectionoftheiridentityandstatusExecutiveSummaryCompanySnapshotAddressableMarketSizeDefinitionofCustomizedFurniture

CurrentMarketSizeBuild-upLong-termSizingPotentialsCompetitiveEdgeEconomicsAnalysisForecastModelSource:BDAinterviewandanalysisMarketSizingMethodologyBDAestimatedthecustomizedmarketsizebyanalyzingthefurnituredemandundereachhomedecorationscenario,customizedpenetrationrateandaverageprice;next,wesummedupthesizeforcustomized,finishedandcarpenterstoarriveattheaddressablemarketsizeAddressableMarketSizeVol.ofCustomizedFurnitureVol.ofFurniture%ofCustomized#ofUnitsforHomeDecorationPenetrationofWardrobePrimaryTransactionSecondaryTransactionExistingHouseRenovation++++AOVCustomizedMarketSizeFinishedFurnitureCarpenter+++PenetrationofKitchenCabinetPenetrationofOthersRealEstateUnit1Source:NBS,CEIC,BDApreviousproject’sreference,BDAanalysisGovernmentcontrolsreturnedtheover-heatedrealestatemarkettoreasonablelevelofgrowthinthepastfiveyears;in2016,totaltransactionsforbothprimaryandsecondaryhousesamountedto15.3MN,andexistinghousestotaledat279MNinChinaPrimaryTransactionSecondaryTransactionExitingHouses-1%-3%-9%+17%+3%Unit:KHousesTransactionandExistingHouseUnit,2011-2016CAGR1.0%+4%+35%-12%+47%+11%14.9%+4%+4%+4%+5%+4%2012201120152013201420164.0%HomeDecorationDemand2Primary

Decorationdemandas%oftotalRationaleExistingRenovationProportionofExistingHomeRenovationinTotalDecorationDemandin2016HomeDecorationDemand,2016100%HomedecorationconsistsofthelayoutandfurnishingofinternallivingspaceAlmostallnewhousepurchaserswilldecoratethehouseforself-useorrentalpurposesForsecondaryhouses,thelikelihoodforredecorationisalsohighasChinesepurchasersvaluethelivingconditionsandhopetocompletedecorationprocessonceandforallbeforemovinginAround0.2%willberenovatedeachyearbasedonBDA’sestimationThenumbersareonanupwardtrendgiventhecomingofupgradedecorationdemandfromthefirstrealestateboomin2000sAccordingtoBDAchannelcheck,tier1citieshavewitnessedahigherpercentageofrenovationgiventhelimitednewhousesupplyandincreasingdemandforupgradesfromobsoletehousesboughtduringthefirstrealestateboom;whiletheproportionwascomparablylessinlowertiercitiesaspeoplecouldstilleasilychoosetobuynewhomes

Tier31%Tier27%Tier117%15,40562%33%4%201111,80177%22%1%+5%PrimarySecondaryExisting2016BDAestimatesthetotalhomedecorationdemandamountedto15.4MNhouseunitsin2016;primaryhousesarestillthecoredriver,whilesecondaryhousestransactionsandexistinghomerenovationsareontheriseSource:NBS,CEIC,BDApreviousproject’sreference,BDAanalysisUnit:KHousesSecondary

~90%FurnitureDemand3PrimarySecondaryExistingHomeWardrobeFurnitureDemandunderEachTypeofHomeDecorationNeedsKitchenCabinetOthersSource:BDAinterviewandanalysisFurnitureDemandbyType,201678%17%5%Wardrobe13,80470%Others13,80470%26%4%KitchenCabinet12,27126%4%PrimarySencondaryExistingUnit:KSetPrimaryhousehasthemostfurniturepurchasingneeds,followedbyexistinghomerenovation,whilesecondaryhousetransactionsusuallyhavealowerreplacementneedforkitchencabinet;asaresult,weestimatetheannualdemandforwardrobe,kitchencabinetandothersare13.8K,12.3Kand13.8Krespectivelyin2016~90%:Forexistinghomerenovation,wedeemcustomershavehighintentiontoupgradefurniture;otherwise,theywon’tchoosegoingthroughtime-consumingandtroublesomedecorationprocess;besides,sinceChinesecustomersprefercompletingthewholedecorationprocessallatonce,sotheymaychoosetoreplacethefurnitureforthewholehouse70%ofsecondaryhousepurchasersmaybuyadditionalwardrobesastherestmaybeinheritedfromthepreviousownersornewownermayuseanexistingone70%ofsecondaryhousepurchasersmaybuynewfurnitureastherestmayusetheirexistingpieces;it’salmostthesamepreferenceaswardrobes40%ofsecondaryhousepurchasersmayreplacetheexistingkitchencabinets,whichislowerthanotherfurniturereplace-mentratesasittakesmoretime100%givenstartingfromscratchAssumeeachhouseneeds1.5wardrobes(typically2roomsperhouse)100%includingthepre-installmentfromfinedecorationhouses(“精装房”)Assumeeachhouseneedsonesetofkitchencabinets100%givenstartingfromscratchOthersincludevariouskindsofcabinets,standsandwoodenbasedfurniture

ModelPreference4WardrobeModelPreference,2016MainGrowthDriver