Dongbai Group announced the 202H1 results: revenue fell 7.3% year on year to 990 million yuan, net profit of returned mother increased 41.8% year on year to 100 million yuan; net profit after deduction of non-return mother increased 54.9% year on year to 90 million yuan.

The net profit of the mother in the first half of the year increased by 41.8% year-on-year. 2022H1, the company's revenue fell 7.3% year on year to 910 million yuan, net profit of the mother increased 41.8% year on year to 100 million yuan; net profit after deducting the return of the mother increased 54.9% year on year to 90 million yuan. By sector: 1) The company's commercial retail sector revenue was 82 billion yuan, down 4.6% from the previous year, mainly affected by the epidemic. The gross profit margin was 49.4%, which was basically stable over the previous year; 2) the warehousing and logistics business achieved main business revenue of 47 million yuan, an increase of 15.8% over the previous year. Mainly, the occupancy rate of the Beijing Yizhuang project and the Jiaxing Wangdian project increased, while the Changshu Jingkai South project was completed in the second half of 2021; gross profit margin was 91.6%, down 1.7 percentage points from the previous year. In the first half of the year, the company completed a project settlement with the Lingzhan Fund, increasing the company's investment income and effectively hedging the impact of the decline in revenue from its main business.

Warehouse logistics created a second growth curve. Dongbai Logistics focuses on asset-light operation ideas and adopts a closed-loop operation model of “investment-construction-recruitment-withdrawal-management” to achieve a closed loop of capital through investment, development, operation, withdrawal and retention of management rights for various warehousing and logistics projects and operating on a rolling basis. Following the strategic cooperation reached between the company and Blackstone Group of the United States in 2018, the company will cooperate with Lingzhan Fund on 3 warehousing and logistics projects this year. The first half of the Jiaxing Daien project was completed, and the other 2 projects will be completed in the second half of the year. According to the company's previous announcement, the transfer of these three projects is expected to bring the company a net profit contribution of 140 million yuan to the mother.

As of mid-2022, the company had 1.84 million square meters of warehousing, including 380,000 square meters completed, 870,000 square meters under construction, and 590,000 transferred operation and management projects. According to estimates of construction progress, it is expected that incremental increases will continue to be released over the next three years. On the one hand, the company's own assets will contribute to rent income, and on the other hand, such forms of cooperation with well-known funds are expected to continue to operate, increasing investment returns.

Maintain a “Highly Recommended” investment rating. The company has commercial retail and warehousing logistics as its two main businesses. We expect the commercial retail business to maintain steady growth, while the warehousing logistics business will enter a fast track of development with the release of the company's reserve area. We expect net profit attributable to the mother in 2022-24 to be $2.4/27/290 million, respectively, corresponding to 15 times the P/E of 2022. Based on: 1) benefiting from downstream demand, warehousing logistics - especially demand for high-standard warehouses will increase; 2) it is expected that the company's warehousing and logistics reserve area will be released in the next three years, and the company's warehousing and logistics business will enter a rapid development channel; 3) The impact of the epidemic will gradually weaken in the future, maintaining the company's “strong recommendation”

ratings.

Risk warning: offline consumption falls short of expectations; demand for warehousing and logistics falls short of expectations; the release of the company's warehousing and logistics reserves falls short of expectations.