2016 results are in line with expectations

Baisheng Group announced 2016 results: revenue of 4.6 billion yuan, a year-on-year decrease of 2.8%; net profit of 147 million yuan (net loss in 2015), corresponding to a profit of 0.06 yuan per share. The company reversed its losses, mainly benefiting from the sale of properties in Beijing. Excluding this one-time factor, operating profit was -202 million yuan (-94 million yuan in 2015).

The performance was generally in line with expectations.

The growth rate of same-store sales improved in the fourth quarter of 2016 to 1.4% (down 9% in the first 3 quarters of 2016 and 8% in 2015), mainly benefiting from a low base (13% decline in same-store sales in the fourth quarter of 2015) and the recovery of the retail industry.

Development trends

Although Baisheng Group is expected to benefit from the recent recovery trend in the offline retail industry, we are still concerned about the company's long-term development.

1) More than 50% of the company's stores are over 5 years old, and market share is gradually declining under fierce competition; 2) The company is actively exploring shopping mall development opportunities. However, generally speaking, the sales efficiency and return of the shopping mall model is lower than the department store model, so losses may increase in the short term.

Profit forecasting

We raised our earnings per share forecast for 2017 by 5% from -0.08 yuan to -0.07 yuan.

Valuation and advice

Currently, the company's stock price corresponds to 0.5 times the 2017 net market ratio. We maintained our evasive rating, but raised our target price by 8.77% to HK$0.62 (0.3 times 2018 net market ratio), leaving room for 36.73% decline from the current stock price.

risks

Potential consolidation and capital operation.