The results in the first half of fiscal year 2023 are in line with our expectations
The company announced its results for the six months to September 30, 2022: revenue of 40.61 billion yuan, year-on-year-2.2%; net loss of 90 million yuan (net profit of 110 million yuan for the same period last year); net profit of 20 million yuan in the later period excluding impairment, to achieve a break-even. The net loss of 70 million yuan (the net profit of 120 million yuan in the same period last year) is basically in line with our expectations.
Trend of development
1. The same store declined slightly in the first half of the 2023 fiscal year, and the arrival business maintained rapid growth. During the 1HFY23 period, in terms of different business formats, 1) merchandise sales revenue was 39.08 billion yuan, down 1.7%, of which the same store was-0.2%, mainly due to intensified competition in the industry and disturbance of the epidemic, of which Q1 and Q2 same stores in fiscal year 2023 were + 2.2% and 2.3% respectively.
The arrival business developed steadily. Driven by the increase in customer unit price, the company's online business income increased by 14.3%, accounting for nearly 35% of commodity sales revenue, of which B2C reached nearly 75 yuan for business customers per hour, with an increase of 11.9%. 2) Rent income is 1.53 billion yuan, down 13.9%, mainly due to the disturbance of the epidemic and the impact of rent reduction policy. In terms of exhibition stores, during the 1HFY23 period, the number of super stores increased by 1 to 10, while the number of stores in hypermarkets and Xiaochao decreased by 2 to 4 respectively, with a total of 488 stores respectively.
2. Under the change of income structure, the gross profit margin is under short-term pressure, and the cost end is improved. The gross profit margin of 1HFY23 is also reduced by 1.4ppt to 24.9%. We expect that the proportion of online revenue will increase under the pressure of rental income due to the disturbance of the epidemic and changes in the company's channel structure. The expense side has improved, and the sales expense rate has also been reduced to 23.1%, mainly due to the reduction in store impairment losses and the reduction in operating costs caused by repeated epidemics; the management expense rate has also been reduced to 2.6%, mainly due to the return of trade receivables to special loss provisions and company cost control measures. Under the combined influence, the 1HFY23 homing net interest rate also fell by 0.5ppt to-0.2%.
3. The multi-format omni-channel strategy is advancing steadily, focusing on format innovation, online business development and supply chain construction. 1) offline channels: the company actively promoted store restructuring, further promoted the 2.0 model in four stores in East China during the 1HFY23 period, and achieved a significant increase in offline revenue after the transformation; in terms of store innovation, Zhongrun Fat steadily displayed stores, and Xiao Runfa continued to focus on Nantong area to optimize the community shop business model; 2) online business: the company's hourly business continued to grow, providing differentiated operations for users of various channels and business circles. The company plans to open up the omni-channel membership system to improve the hierarchical operation efficiency of users; 3) fresh supply chain construction: during the 1HFY23 period, the company built 8 new fresh warehouses, and more than 200 stores have completed supply chain switching, we believe that it is expected to promote the standardization and quality of the company's fresh products.
Profit forecast and valuation
Considering the industry competition and the uncertainty of the epidemic situation, the net profit forecast for fiscal year 2023 is reduced from RMB 202,750 million to-0.94 billion RMB respectively, and the current share price corresponds to 33 times of Pmax E in fiscal year 2024.
Maintain an industry rating that outperforms. Taking into account the profit forecast adjustment and the company's medium-and long-term development prospects, cut the target price by 14% to HK $2.40, corresponding to 44 times Pamp E in fiscal year 2024, with 35% upside room.
Risk
The epidemic situation is repeated; the competition in the industry is intensified; the growth of online home is not as expected; and the investment in new business is higher than expected.