Industrial Securities has released a research report stating that the real estate sector has undergone a deep adjustment and anticipates that subsequent policies from both supply and demand sides are expected to provide further support. From an industry perspective, the home furnishing sector is currently in a bottoming-out phase, with valuations potentially entering a recovery cycle. The report forecasts that pressure on total home renovation demand will persist through 2026, although the rate of decline will narrow, with a significant easing of downward pressure expected by 2027, leading to stabilization. Additionally, high dividend yields provide a substantial safety cushion. Regarding specific stocks, attention is recommended on Oppein Home Group, Suofeiya Home Collection, Kuka Home, and Sleemon.

Key viewpoints from Industrial Securities are as follows: In the short term, periodic real estate policy catalysts are expected to drive stock prices in the home furnishing sector upward. Since April 2021, the sector has generally trended downwards with fluctuations, during which several rounds of stock price increases were primarily driven by speculation around real estate policies. Key characteristics include: (1) The duration of price fluctuations depends on the strength and effectiveness of the policies. The significant upward cycles in early 2023 and late 2024 were supported by strong policies and noticeable improvements in real estate/home furnishing data. In contrast, smaller upward cycles often resulted from speculative trading on policy news, typically lasting 1-2 weeks. (2) Regarding earnings sensitivity, a stabilized and improving real estate market benefits customized furniture enterprises more significantly. Companies with a higher proportion of business-to-business sales exhibit greater elasticity but are also subject to larger stock price fluctuations influenced by policy changes.

From a medium-term perspective, the report believes demand pressures in the home furnishing industry will ease marginally. The full-year performance of listed companies in the sector is expected to continue its recovery trend in 2026, with further room for valuation improvement. (1) Industry perspective: Calculated demand for renovation indicates that 2023-2025 were the years of greatest pressure, with 2026 expected to see a narrowing decline and a stabilization of demand optimistically projected for 2027. (2) Listed company performance: A general recovery trend is observed. The quarters from Q2 to Q4 2024 saw the most significant pressure, while a recovery trend emerged from Q1 to Q3 2025, with some companies returning to positive year-on-year revenue growth. Although Q1 2026 performance may be impacted by a high base effect from subsidies in Q1 2025, the recovery trend is expected to continue for the full year 2026. (3) Valuation perspective: Given the high correlation with real estate, secondary and new home sales data are often seen as leading indicators. Current valuation increases in home furnishing companies largely reflect improved policy expectations and high dividend yields. If leading indicators show a warming trend, valuations are judged to have further upside potential.

A review of the home furnishing-real estate chain shows that the concentration of property developers has influenced home furnishing companies' strategies, leading to a shift from expanding to contracting B2B operations. Phase 1 (2016-2020): Policy-driven increases in the proportion of fully-furnished homes and the consolidation of offline retail spaces promoted industry concentration. Accelerated concentration among developers encouraged home furnishing companies to actively develop B2B operations. Phase 2 (2021-2024): While industry consolidation was incomplete, loss rates climbed annually, prompting leading companies to transition and scale back B2B operations. Judging by net operating cash flow, net profit margin, and revenue growth, finished home furnishing companies have shown the best recovery elasticity. Customized furniture and sanitary ware products were more significantly impacted by real estate, but a potential upturn in real estate demand over the next two years could offer substantial earnings recovery potential. Furthermore, previous contagion of real estate risks to home furnishing companies led leaders to diversify products and transform channels, yielding results in 2023-2024, as seen in reduced impact of credit impairment losses on profits, improved net operating cash flow, recovering net profit margins, and lower asset-liability ratios.

Risk warnings include potential underperformance of real estate policies, macroeconomic and market volatility risks, and risks associated with declining industry demand.