China’scustomizedfurnitureindustry–thoughfacingheadwindsfromapropertydowncycleandintensifyingcompetition,especiallyinthefurnituremallchannel–offersasignificantconsolidationopportunityinavast,yetfragmented,market.Goingforward,weexpectindustryleaderstogradually,butconsistently,gainsharefromsmallerplayers.Weexpectindustryleaders,whichenjoymanufacturinganddistributionadvantages,tobenefitfromtherisingportionoffurbishednewproperties,acceleratingtheirmarketshareconcentration.Developers’channel:Long-termrevenueopportunityforleadingplayersAccordingtoAllViewCloud(AVC),c.4.6mnunitsoffurbishednewpropertiesweresoldin2018,23%ofthetotalnewpropertiessold.Thenumberisexpectedtoriseto6.1mnby2020Ebasedonthe13thFive-YearPlan.Incomparison,Suofeiya,aleadingwardrobemanufacturer,onlyhad0.6mncustomersin2018.Hence,webelievecapturingevenasmallportionofthisgrowingsegmentwilltranslateintoconsiderablegrowthforfurniturecompanies.Furthermore,weexpectstringentrequirementsonproductspecifications,deliverytimeandpaymentperiodwillmainlybenefitlargeplayerswithsuperiorfinancialanddistributorresources.Initiatingontwomarketleaders;reiterateBuyonSuofeiyawith34%upsideWeexpectOppein,adominantplayerinkitchencabinetsandthedevelopers’channel,togrowrevenue/netprofitby16%/13%CAGRsin2019E-20E,drivenby:1)categoryexpansion;2)per-storesalesgrowth;and3)continuedinvestmentinmanufacturingexpansion.However,withthesharestradinginline(6%downside)withour12-monthdiscountedEV/EBITDA-basedtargetpriceofRmb82.0,weinitiateatNeutral.GuangzhouShangpinhasdifferentiateditselfwithmoredirect-ownedandshoppingmallbasedstores,andalargerevenuecontributionfromoutsourcedproducts.However,givenrelativelylessdifferentiationinitsfurnitureproducts,weexpectrevenuegrowthtodeceleratesharplyin2019E,posingdownsiderisktothecurrentlyhighvaluation.WeinitiateatSellwitha12-mdiscountedEV/EBITDA-basedtargetpriceofRmb49.0,implying21%downside.WecontinuetofavorSuofeiyaforitsindustry-leadingmanufacturingcapabilitiesanddistributornetwork.ReiterateBuywith34%...
