1H21 same-store sales have not yet recovered, profits have fallen sharply
During the six-month period up to September 30, 2021, Gaoxin Retail realized operating income of 41.534 billion yuan,-5.0% year-on-year, of which commodity sales income was 39.761 billion yuan, year-on-year-5.3%, rental income 1.773 billion yuan, + 3.6% year-on-year; the net profit of returning to its mother was 117 million yuan,-86.0% compared with the same period last year. We predict that the company's EPS in 2021-23 will be 0.13 EPS 0.19 yuan 0.32 yuan respectively. As of 2021-11-1, according to the unanimous expectation of Wind, the average PE of comparable companies in the industry will be 35x. The company will focus on strategic transformation, consolidate offline store share, continue to expand the network of small and medium-sized supermarkets and carry out O2O business. Although it has recovered from the impact of the epidemic, same-store sales are still relatively weak, and the contribution of emerging business has not yet been demonstrated. Give the company 32x PE in 2021, with an "overweight" rating corresponding to the target price of HK $5.06 (previous value of HK $14.1).
Same-store sales remain weak
The company's 1H21 same-store sales fell 7.4% year-on-year, mainly due to the negative impact of the decline in pork CPI on same-store sales, offline sales still face multi-channel impact, and offline sales still face the impact of multiple channels, but the decline in goods sales is smaller than that of the same store, mainly due to the company's active promotion of online business, part of its growth hedges against the decline in offline business. During the reporting period, the company opened 3 new large-scale stores and 36 small Runfa supermarkets. As of September 30, 2021, the company has 491 large stores, 6 Zhong run Fat and 68 small run Fat. Throughout the year, the company is expected to continue to expand its offline sales network and focus on small and medium-sized supermarkets to reduce operating costs and get closer to consumers.
Profit margins continue to be under pressure, and expense rates rise.
The company's gross profit margin for 1H21 was 26.3%, down 0.6% from a year earlier. Since 2021, the company has adopted an active business strategy to develop small and medium-sized Runfa business, cultivate online business, and increase the frequency of promotional activities to attract passenger flow, and the gross profit margin has declined slightly. We expect offline retail sales to remain weak and gross margins may continue to be under pressure. In the short term, with the addition of offline outlets, the investment in fixed assets will erode part of the profits, and the increase in marketing expenses brought about by the expansion of online business will also significantly increase expenses, the rate of 21H1 sales and marketing expenses has increased significantly compared with the same period last year, while the rate of administrative expenses has remained the same as that of the same period last year, while the proportion of financial expenses has increased slightly.
Online and offline collaboration to create long-term competitiveness, there are still major challenges in the short term, as offline retail business has not yet recovered and competition is fierce, we expect the company's offline business to continue to face challenges. The company in the small run hair to take "direct mining + fresh processing warehouse" transformation is expected to enhance competitiveness.
In addition, the company partnered with BABA (9988 HK,BABA US) to focus on the supply chain and build community group-buying projects, but the short-term profit contribution may be limited. As the cost increases, the company's profitability may still face challenges.
Risk hint: retail demand remains sluggish. Business expansion fell short of expectations.