The department store industry is expected to recover as the main channel for quality consumers

With the increase in per capita disposable income and the decline in the Engel coefficient, residents' demand for quality upgrades has gradually increased. According to PricewaterhouseCoopers's forecast, the domestic luxury goods market is expected to reach an average annual compound growth rate of 16% in 2022-2025, and the market size is expected to reach 816 billion yuan in 2025. Currently, the online penetration rate of most luxury goods is low, and offline is still the main channel. The department store industry, as the main channel for quality consumers, has ushered in a recovery. Zhejiang Province's per capita disposable income and consumption expenditure rank among the highest in the country. Quality consumption in the province has strong growth potential, and the department store industry in the province has good potential for development.

In the short term, quality consumption in the province continues to recover, and the company's performance is expected to recover. Judging from the recovery of social zero in Zhejiang Province from January to January 2023, consumption upgrade products in the province have recovered relatively well. As a luxury goods landmark and main channel for quality consumers in the province, Hangzhou Jiebai is expected to continue to benefit from the recovery in consumption in the province. Under the low base of company performance in 2022, the main retail industry is expected to usher in a strong rebound in 2023. Furthermore, in September 2023, Hangzhou will host the 19th Asian Games, and Hangzhou is expected to welcome a large number of visitors, which will benefit the retail business. As the first batch of authorized retailers for the 19th Asian Games, Yuesheng Sports, a holding subsidiary of the company, is also expected to benefit from hosting the Asian Games.

Looking at the long term, various favorable factors such as brand advantage are expected to guarantee steady growth in performance. As a luxury goods landmark in the province, the company has a strong brand advantage. On the one hand, it is conducive to attracting traffic, and on the other hand, it will also attract more luxury brands. Members have the characteristics of high consumption frequency and high unit cost of consumption. The number of company members and member sales have been growing steadily in recent years. Huge and active members are expected to guarantee steady growth in the company's performance while empowering other business formats. The company's own business is relatively stable. As an important means to enhance product differentiation, the company's steady self-operated business is expected to enhance the company's long-term competitiveness. In addition to the main retail business, the company's entire medical and Yuesheng sports business is gradually on the right track after several years of cultivation, which is expected to bring new growth to the company.

Company profit forecasting and valuation

The company's revenue for 2023-2025 is estimated to be 23.70, 27.43 and 3.176 billion yuan respectively; YOY is 19.22%, 15.75% and 15.78% respectively; EPS is 0.49, 0.62, and 0.72 yuan respectively. According to reasonable valuation estimates, combined with stock price catalyst factors, the company is given a target price of 9.80 yuan/share within six months. The company's valuation level is lower than that of comparable companies, giving the company a “recommended (first)” investment rating.

Investment risk tips

The risk of a decline in the market share of the main business and the risk that profit growth is under pressure