The third-quarter industry trend aligned with our earlier expectations. In our mid-term strategy, we anticipated that the furniture sector would maintain strong performance in the second half of the year, and we assigned it an "overweight" rating. In terms of market performance, the furniture industry index outperformed the broader market during the third quarter. As of now, the furniture index has risen by 28.85%, compared to a 12.34% increase in the Shanghai and Shenzhen 300 Index, outperforming by 16.51 percentage points. Individual stocks such as Yihua Wood (20.73%), Xilinmen (37.29%), and Meike (23.79%) also showed strong gains.
Despite this positive momentum, the furniture industry still faces several challenges. First, there is a growing shortage of forest resources, which could constrain supply. Second, the export-driven growth that once supported the industry is weakening. Third, most manufacturers are stuck in the manufacturing process, with limited control over retail channels. Fourth, the industry remains highly fragmented, with low concentration and inconsistent quality standards.
Looking ahead, we expect several key trends to shape the future of the furniture sector. First, panel furniture is gradually taking market share from solid wood furniture, giving upstream artificial board producers more pricing power. Second, companies with significant forest resource reserves will have stronger cost control and higher profitability. Third, the industry is shifting from export-led to domestic demand-driven, where strong brand presence and efficient distribution channels will be critical. Fourth, differentiated competition through innovation—both technological and business model-based—will become essential for market leadership. Lastly, industry consolidation and reorganization are likely to increase overall market concentration.
From a long-term value investment perspective, certain companies stand out. Daya Technology, with its strong position in wood-based panels, Qifeng Shares, a leader in decorative base paper, and Yihua Wood, which holds a large inventory of precious logs, all have competitive advantages and strong investment potential. Additionally, the shift toward domestic demand makes companies like Sofia, which is transforming into a customized furniture model, and Xilinmen, which has successfully transitioned from export to domestic sales, particularly attractive. Meike’s strong brand building also adds to its investment appeal.
On the short-term performance front, the recovery in real estate since the second half of last year is expected to continue driving furniture sales. Companies with robust domestic sales channels and strong brand recognition, such as Sofia, Meike, and Xilinmen, are well-positioned to benefit. Moreover, Yihua Wood, which holds the largest share of U.S. furniture exports, is likely to see continued growth due to the ongoing recovery in the U.S. real estate market.
In summary, the furniture industry is undergoing structural upgrades, and many companies show long-term investment value. Improvements in both internal and external operating conditions are supporting better performance this year. Whether looking at long-term value or short-term growth, the sector offers promising opportunities. With the upcoming peak decoration season in the fourth quarter, we expect the industry to remain strong and maintain its "overweight" rating. We recommend Yihua Wood, Xilinmen, and Sofia as key investment choices.
**Risk Warning:** (1) Excessive tightening of real estate regulations; (2) A global economic downturn affecting furniture exports; (3) A sharp rise in raw material prices. (Editor: Peter)
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