Suofeiya Bespoke Cabinet Profits to Be Pressured in the Short Run.doc

1、1Suofeiya Bespoke Cabinet Profits to Be Pressured in the Short RunWith the guide of “Big Furniture Strategy”， Suofeiya Home Collection Co.， Ltd （Security Code： 002572 at the Shenzhen Stock Exchange） gained a very shining sales income. In its Semi-annual Report released recently， many financial indic

2、ators of Suofeiya， including corporate operating income and net profits， realized great increases. Its operating income in the first half of the year reached 1.67 billion yuan with a Y-o-Y increase of 44.1%； its net profits attributed to equity shareholders approximated 200 million yuan with a Y-o-Y

3、 increase of 48.0%. In terms of capacity expansion， Suofeiya raised funds of nearly 1.1 billion yuan by the means of nonpublic offering， which were used to upgrade the platform of furniture digitalization ecological system， transform information system， upgrade the intelligentization of production b

4、ases， construct the first phase of production bases in Central China， etc. Nevertheless， the companys new bespoke cabinet brand， 2SCHMTDT Simi cabinet is still facing the risks of losing money in the short run， while its overall sales income increased greatly. Its Semi-annual Report shows， Simi Cabi

5、net Co.， Ltd. realized operating income of 110 million yuan， operating profits of minus 62.672 million yuan and net profits of minus 62.747 million yuan. The main problem Simi Cabinet is facing is it has too few terminal shops. Suofeiya replied in one written letter in terms of loss-reversal related

6、 questions， all teams of Simi Cabinet were started from scratch， including production workshop， sales team， business procedures， distributor team， etc. Merely for building backstage manufacturing factories， it has cooperated with its France partners with total capital injection of 400 million yuan.

7、Sofeiya is honoured as the first brand of bespoke wardrobe in China， mainly running bespoke wardrobe and other equipped furniture covering research & development， production and sales. On 9th August， Sofeiya published its Semi-annual report. With its implementation of “Big Furniture Strategy”， the c

8、ompany demand for capital has been increasing in new production bases construction， and intelligentization transformation of streamlines， while it experienced great 3sales income gradually. On July 28， Suofeiya published its listing announcements that it fundraised 1.1 billion yuan， and targeted to

9、increase average individual output by 60% within five years， lower labour cost by 60% and realize installation rate of above 90%. It is known that Suofeiya has been gradually investing in flexible production lines since 2012， and built five production bases in North China， East China， West China， Ce

10、ntral China and South China， respectively in Langfang of Hebei， Jiashan of Zhejiang， Chengdu of Sichuan， Huanggang of Hubei and Zengcheng of Guangzhou. In 2015， its production bases of bespoke wardrobes and equipped cabinets reached over 100，000 sets on average per month with average utilization rat

11、e of around 83.92%. The companys gradual upgrades of production capabilities are mainly to enhance productivity and control costs. As the bespoke furniture industry develops rapidly， the proportion of non-standardized sets increases gradually and the flexible production characterized by personalizat

12、ion and massivity is the key to realize large size bespoke production. Since the beginning of 2015， the company has taken the initiative in price cuts by launching packages of“799 yuan per 4square meter” and“899 yuan per square meter”. It will continue to treat market shares and Market penetration r

13、ate as its primary operating indicators， and consolidate its status as the leading company. However， its high frequency capacity expansion plan and demand for intelligentization transformation brought no small pressures. Its net cash flow from investments were minus 239.743， minus 442.8965 and minus

14、 790.3333 million yuan from 2013 to 2015. Suofeiya explained that the main reason was it and its branches expanded production scale， constructed new production bases， purchased equipment， factories and offices in large quantities， and increased investment in foreign shares. However， Suofeiya express

15、es that， its overall asset debt ratio is relatively low. “The companys main business is bespoke furniture. Generally， it will only produce after customers make the full payment. Therefore， its cash flow for operating activities is relatively abundant， and asset debt ratio is relatively low.” It is u

16、nderstood that， since Suofeiya started implementing Big Furniture strategy， it has been continuously expanding its product types and entered markets of wooden furniture sofa， 5soft outfits， wooden doors， etc. successively. Bespoke cabinets also become an essential part of its bespoke furniture strat

17、egy. In the beginning of 2014， Suofeiya agreed on the cooperation with French cabinet export SALM group and brought in SCHMIDT Simi cabinet. On 9th July of 2014， Suofeiya officially launched French Simi cabinet brand. At that time， Simi Cabinet published its five-year development strategy： to realiz

18、e the target of “2.5 billion yuan， 1600 shops” by 2018. However， as new expanded businesses， prospects of profitability of Simi Cabinet being pressured in the short run might be difficult to change， while its operating income grew rapidly. Suofeiyas semi-annual report disclosed， Simi Cabinet realize

19、d operating income of 110 million yuan， operating profits of minus 62.672 million yuan and net profits of minus 62.747 million yuan. Simi Cabinet explained why it suffered losses by saying that， “Simi Cabinets terminal shops are far from enough. Its sales volumes havent reached high and its spending

20、 on market developments and production bases are high.” Its sales in the first half year was around 100 million yuan， its target of 300 million yuan could roughly be accomplished for the entire year. 6But affected by depreciation costs and market development spending， it is predicted to be still in

21、deficit， next year it may expect gains. In addition， rapid development in the bespoke cabinet industry and gradual expansion of its production scale， Suofeiya faces more challenges of management and capacity digestion. Until 30th June of 2016， Suofeiya had 1700 exclusive shops of whole house bespoke

22、 products and would have 1800 ones at the end of 2016. Suofeiya said， “As there are more distributors exclusive shops and larger operating areas， Suofeiya faces more challenges of administration models and capabilities from departments of research & development and design， purchase and supply， manuf

23、acturing， sales services， logistics and delivery， staff management， capital management， etc.” In order to foster capacity digestion， Suofeiya plans to make use of its influential power in the first-tier and second-tier Chinese cities， and encourages distributors to open more shops. “Suofeiya will in

24、crease its shop network at the speed of 200 ones， half of which will be in its original areas and the rest of which will be expanded to fourth-tier and fifth-tier cities.” 7On the aspect of Simi Cabinet sales channel， Suofeiya expressed that， its exclusive shops in the first half of 2016 reached 391

25、 （including shops under construction） ， and it will reach 500 in the second half of the year. Simi Cabinet will open shops in the future at the speed of 300 ones per year， to expedite its layout of online shops and enhance terminal shops capabilities of receiving orders. It is known that Suofeiya ad

26、justed downwards its cabinet prices in the first half year in order to have a sales record. One analyst said， “Its total investment in cabinet businesses exceeded 400 million yuan in 2015. As it hasnt reached scale effect as expected， it suffered losses of over 80 million yuan and financial statemen

27、ts of the group were around minus 40 million yuan. It is estimated that Simi Cabinet has a sales target of 400 million yuan. According to industry experience， there will be profit and loss balance when sales reach 300 million yuan. Scale effect of cabinet businesses will speed up its sales and gross profits are expected to reach 30%.”