The current situation of the company
We recently invited Gao Xin retail management to participate in China International Capital Corporation 2021 Investment Forum to have in-depth exchanges with investors and update the company's recent business progress and future development plans. We believe that the company's focus on supply chain capacity and digital member operation capacity building is expected to help improve the overall efficiency in the long term.
Comment
1, the same store is still under pressure, Q3 same store year-on-year decline narrowed. In the first half of fiscal year 2022 (2021.4-9), company same-store year-on-year-7.4%, of which Q2 same-store year-on-year-12%, is due to the superimposed impact of multiple factors such as the high base of last year's epidemic, intensified competition of new business type, CPI and other factors. The decline of customer unit price is relatively high, Q3 same-store year-on-year-2.9%, the decline is narrower than the previous year, and the impact of customer unit price is relatively small. We estimate that the negative growth of the same store in October compared with the same period last year is due to the high superposition base of the National Day Mid-Autumn Festival in the same period last year. If we adjust this factor, we expect the same store in October to be basically the same. With the control of the epidemic and the gradual recovery of CPI, we expect the same store in the second half of 2022 to be controlled at a low level of negative unit growth.
2. The pace of store expansion is slowing down, and the online business is advancing steadily. In terms of exhibition stores, affected by the intensification of all-channel competition, the speed of small and medium-sized Runfa exhibition stores in the second half of 2022 has slowed down compared with that planned at the beginning of the year, with higher requirements for spot selection and rental costs. The company continues to strengthen its cooperation with BABA. On the one hand, BABA supports the company's home business in terms of flow and logistics services, on the other hand, the company relies on high-quality supply chain capabilities to achieve common growth with BABA in Maochao's shared inventory, community group buying and other businesses. We estimate that at present, the company's online business income accounts for about 30%, of which B2C accounts for about 20%, maintaining a steady double-digit growth trend and still maintaining a profitable state. The community business that the company began to cooperate with BABA this year has also achieved rapid volume expansion, and we expect to have a single-digit contribution to revenue. We believe that the two sides are expected to continue to deepen cooperation online and offline in the future, and are optimistic about the medium-and long-term development prospects of the company's omni-channel model.
3. Pay attention to the capacity building of the company's supply chain and the operation capacity of digital members. 1) focus on supply chain capacity building: the company has established three fresh processing centers in the first half of 2022, and the company expects to speed up the construction of fresh processing centers and strengthen direct mining bases. in the following year, it is planned that the processing center will be able to cover more than half of the Da Runfa market. We think that if the fresh processing center model is successful, the company is expected to reduce the intermediate circulation links and save costs at the same time. Enhance the added value of its products through standardized packaging. 2) improve the operational capacity of members: the company has previously focused more on "market" and business-side operations, and plans to increase investment in digital operations for members in the future, including marketing and content system construction. The company has introduced relevant talents to join, and we think it is expected to make use of the digital ability in BABA system to improve the operational efficiency of its members.
Valuation and suggestion
Considering the combined effects of the slowing pace of store expansion and fierce competition in the industry, we have reduced our net profit by 18% in fiscal year 2022 and 13% in fiscal year 2023 to RMB 80,000,000. The current share price corresponds to 21 times Pamp E in fiscal year 2023. It maintained its outperforming industry rating and lowered its target price by 13 per cent to HK $4.76 due to earnings forecast adjustments, corresponding to 30 times Pamp E in fiscal year 2023, with 43 per cent upside space.
Risk
Industry competition intensifies; online-to-home growth falls short of expectations; investment in new business exceeds expectations.