FY2023 made the company's net profit of 110 million yuan, turning a loss into a profit (-740 million yuan for the same period last year). FY2024 is expected to increase the speed of opening stores. As of 2023/3/31, the company has obtained 22 locations to set up hypermarkets (3 of which are under construction) through the signing of leases/land acquisitions, and has also signed 12 contracts with Zhongrunfa (3 of which are under construction). While the offline business continues to recover, the company expects to continue to maintain the sustainable growth of the online B2C business. The target price was lowered to HK$2.0 (the original target price was HK$2.7) to maintain the “increase holdings” rating.
FY2023 turned a loss into a profit. FY2023, the company achieved revenue of 83.66 billion yuan, of -5.1% year-on-year, of which product sales revenue/rental revenue was 80.54 billion yuan/3.13 billion yuan, -4.8%/-11.6% year-on-year. FY2023, the pandemic impacted offline traffic, causing the company to sell at the same store -4.0% (of which FY23H1: -0.2%). FY2023, the company achieved operating profit of 1.18 billion yuan (0.18 billion yuan for the same period last year). After deducting accruals (store impairment, litigation accruals, and special bad debt preparations), it was 1.56 billion yuan, corresponding to an operating profit rate of 1.9%; realized net profit of 78 billion yuan (-8.3 billion yuan for the same period last year); realized net profit of 370 million yuan after deduction, a corresponding net interest rate of 0.4%; realized net profit of 110 million yuan (-740 million yuan for the same period last year).
Gross margin/sales expense ratio/management expense ratio was +0.2pct/-1.0pct/-0.1pct over the same period last year. FY2023, the company's comprehensive gross margin was +0.2pct to 24.6% year-on-year, mainly due to: 1) reduced marketing investment; 2) increased product strength and enhanced fresh supply chain capacity. FY2023, the sales expenses ratio was -1.0pct to 22.1% year-on-year, mainly due to: 1) reduction in store impairment loss accrual; 2) cost reduction and efficiency. FY2023, the management fee rate was -0.1pct to 2.8% year-on-year; the company's total overall cost rate was 25.0%.
It is expected that FY2024 will increase the speed of opening stores. Showroom: FY2023. The company opened 1 new hypermarket, 5 small Runfa stores, 21 small Runfa stores, closed 7 hypermarkets and 40 small Runfa stores, and converted 2 more Zhongrunfa stores into hypermarkets. As of 2023/3/31, the company had 486 hypermarkets, 12 Chinese hair salons, and 84 small hair stores. As of 2023/3/31, the company has obtained 22 locations to open hypermarkets through the signing of leases/land acquisitions (3 of which are under construction), and has also signed contracts with 12 Zhongrunfa stores (3 of which are under construction).
The online business continues to grow. FY2023, online business (B2C+B2B) achieved double-digit growth, with B2C sales growing at a rate of about 15%; FY2023, B2C stores had an average daily customer order volume of 1,300 orders (1,250 orders in the same period last year), customer unit price was 75 yuan, and profit levels continued to be optimized.
FY2024 Company Strategy: According to the company's FY2023 annual report, Product: The company will continue to expand trend categories, improve the efficiency of the entire supply chain link, and strengthen its own brand research and development, with differentiated product strength as the primary strategy.
Offline: The company will focus on the three generations that are just needed offline, enhance the value of Da Runfa's “shopping” through 2.0, and continue to invest in M member stores to make offline a community lifestyle service center. Online: The company will focus on young and middle-aged families with children, give full play to fresh and nearby advantages, maintain the sustainable growth of B2C business, and become a reliable online fulfillment center.
Risk factors: macroeconomic pressure, consumption continues to be sluggish; the impact of diversified business formats intensifies; the company's cultivation of small and medium-sized supermarkets falls short of expectations.
Investment suggestions: Considering that it will still take time for customer flow to fully recover, the large number of small Runfa stores newly opened by FY2022 still need to be cultivated. Adjust the company's revenue forecast for the 2024-26 fiscal year to 8848 billion billion/91.79 billion yuan /94.44 billion yuan (the original forecast was 96.25 billion /99.75 billion yuan/103.40 billion yuan), and adjust the net profit forecast for the 2024-26 fiscal year to 180 million/4.1 billion yuan /590 million yuan (the original forecast was 840 million/1.14 billion/1.55 billion yuan), corresponding The EPS forecast for the 2024-26 fiscal year is 0.02/0.04/0.06 yuan (the original forecast was 0.09/0.12/0.16 yuan), referring to the industry valuation level [Wind Unanimously Expected CY2024: Supermarkets and Convenience Stores (CITIC Level 3 Industry Index) 33x PE], the company is the industry leader, grants a certain valuation premium, and grants the company FY2025 (CY2024 and the company's FY2025 overlapping quarter is CY2024Q2-CY2024Q4) 41x PE, corresponding to target price 2.0 HKD (original target price of HK$2.7), maintaining the “increase holdings” rating.