Incident Overview

The company released the first quarter report of 2023. In Q1 of 2023, the company achieved revenue of 2,617 million yuan, down 22.47% from the previous year; Guimu's net profit was 146 million yuan, down 79.1% from the previous year; and after deduction, the net profit of Gimu was 216 million yuan, down 54.5% from the previous year. In terms of cash flow, net cash flow from operating activities was $1,076 million, down 14.59% from the same period last year.

Analytical judgment:

Revenue from rental shopping malls has declined significantly

During the reporting period, the company had opened its own shopping malls and obtained revenue of 1,641 billion yuan during the reporting period, a year-on-year decrease of 24.4%. Among them, owned shopping malls achieved revenue of 1,362 million yuan, down 23.8% from the previous year; leased shopping malls achieved revenue of 213 million yuan, down 30.4% from the previous year; and joint ventures achieved revenue of 66 million yuan, down 12.9% from the previous year. In 2022, the company was greatly affected by macroeconomic fluctuations, and the shopping mall rental rate declined to a certain extent. Although the economy has now gradually recovered, we believe that the recovery in the company's shopping mall occupancy rate will not happen overnight. In the future, as the occupancy rate is repaired, the company's revenue will gradually improve.

Profit margins increased month-on-month

In terms of profitability, the decline in the company's net profit is mainly due to the epidemic's rent-free amortization and delays in the progress of related services during the income period. In 2023 Q1, the company's gross margin fell 1.65 pct to 59.81% year on year, and increased 6.66% month on month. Net interest rate fell 11.67 pct to 7.08% year on year, and increased 19.83% month on month. In terms of expenses, the company's fee rate in Q1 2023 was 41.31%, an increase of 5.28 pct over the previous year. Among them, the sales expense ratio was 9.83%, an increase of 1.59 pct over the previous year. The management fee rate was 11.16%, an increase of 0.68pct over the previous year. The financial expense ratio was 20.13%, an increase of 3.22pct over the previous year, mainly due to a decline in revenue. The R&D expenditure rate fell 0.21pct to 0.19% year over year.

Investment advice

The company continues to promote “light assets, focus on operation, and reduce leverage” while continuously enriching the channel structure and capturing traffic from multiple dimensions. We expect the company to further expand the home improvement business, soft decoration business, high-end home appliance retail business, etc., and profitability will be restored in 2023. We maintain the company's profit forecast for 2023-2025. Revenue was 153.51/165.82/17.587 billion yuan respectively, and EPS was 0.41/0.50/0.58 yuan respectively. Corresponding to the closing price of 5.20 yuan/share on April 29, PE for 23-25 was 12.71/10.39/8.92X, respectively. Maintain the company's “buy” rating.

Risk warning

1) Real estate sales fell short of expectations. 2) The expansion of the new retail model is not going well. 3) The C&D stock acquisition and Alibaba stock conversion incident have not been successfully implemented, and there are still uncertain risks.