Guotai Junan: Stimulating consumption policies expected to catalyze company valuation repairs, future of leading home textile companies may continue with high dividends.

Guotai Junan Securities released a research report stating that in October, the revenue of clothing brands improved month-on-month, and the fundamentals are expected to stabilize and improve. Considering that the valuation of leading brand apparel is still relatively low, some stocks excluding net cash have low price-earnings ratios. Under the catalysis of consumption promotion policies, company valuations are expected to see recovery. In addition, considering that leading home textile brands have ample cash flow, low capital expenditure needs, and are likely to continue high dividends in the future, the current dividend yield is among the industry's top. Guotai Junan Securities' main points are as follows: Subsidies for home textiles continue to increase, recent online subsidies have expanded nationwide. Online home textile subsidy activities can be divided into two stages: 1) First stage (during Double 11): After the Double 11 activities, the home textile subsidy activities of Luolai and Mercury brands have successively launched on the Taobao platform. During this period, subsidies come from the Shanghai municipal government and cover categories such as sets, duvets, silk quilts, pillow cores, blankets, etc., with a subsidy rate of 15% and payment through Yunshang payment, but delivery addresses are limited to the Shanghai area. 2) Second stage (after Double 11 to now): On one hand, users participating in Taobao platform home textile subsidy activities have expanded their delivery addresses from the original Shanghai area to the entire mainland of China, benefiting a larger group; on the other hand, the Jingdong platform has launched a national subsidy activity for home textiles, with a subsidy rate as high as 20% covering all categories, payment through Yunshang payment, and the subsidy is available to users nationwide, expected to further boost home textile consumption demand. Offline home textile subsidies are gradually being implemented, starting in Shanghai and closely followed by Xiamen. 1) Shanghai: In late October, home textile products were formally included in the Shanghai municipal consumer subsidy policy range, covering categories such as duvets, bed sets, pillow cores, blankets, etc. Brands that can enjoy subsidies include Luolai, Mercury, Shenzhen Fuanna Bedding and Furnishing, Mengjie, and Queen, among other leading home textile brands, with offline subsidies covering department stores and brand stores. According to recent feedback from offline surveys, stores in the Shanghai area are actively cooperating in implementing subsidy policies, consumers need to complete real-name authentication on the Yunshang payment platform in advance, and can enjoy a 15% government subsidy when purchasing designated home textile products offline, with a maximum subsidy of 2000 yuan per transaction. 2) Xiamen: On October 30th, Xiamen Housing and Urban-Rural Development Bureau and 4 other units jointly issued a notice on amending the implementation rules of the subsidy for the purchase of materials for renovation and partial transformation of old houses in Xiamen, expanding the subsidy objects, broadening the subsidy categories, and promoting online sales. Bedding is included in the subsidy scope, with a 20% subsidy rate and a maximum subsidy of 2000 yuan per transaction. Leading home textile brands actively participating in subsidy activities, terminal sales are expected to be boosted. Recently, Luolai, Mercury, Shenzhen Fuanna Bedding and Furnishing have successively launched home textile subsidy activities on online platforms and in corresponding offline areas. Although the current subsidy activities have a short launch time, considering the wide coverage of subsidy activities and large discount rates, terminal sales are expected to be boosted. Leading home textile brands have strong brand power and superior product quality, expected to fully benefit and see continued improvement in fundamentals. Risk warning: Terminal consumption falls below expectations, industry competition intensifies.