Events:
The company disclosed its semi-annual report that in the first half of 2018, the company achieved operating income of 6.066 billion yuan, an increase of 1.50% over the same period last year, and net profit of 538 million yuan, an increase of 37.31% over the same period last year.
Main points:
1. Business adjustment, proper management and control of overlay expenses, improvement in profitability to boost net profit
In the first half of 2018, the company achieved operating income of 6.066 billion yuan, an increase of 1.50% over the same period last year, and net profit of 538 million yuan, an increase of 37.31% over the same period last year. Due to the provision of interest on related party loans and the net profit from the beginning of the Chongqing Maoye department store to the merger, the non-recurrent profit and loss increased by 1122.96% compared with the same period last year. Non-net profit deducted reached 520 million, an increase of 37.26% over the same period last year.
The company's revenue growth is in line with expectations, and the high year-on-year increase in net profit stems from a significant improvement in profitability. The company adjusted its business model and changed the Victoria stores in Northwest China and Huaqiang North department counters from joint venture to leasing, and the operating efficiency was significantly improved. The gross profit margins of department stores in Hohhot, Baotou and Shenzhen reached 20.9%, 19.4% and 22.02% respectively, an increase of 0.2pct, 0.68pct and 2.7 PCT over the same period last year. The company's sales gross profit margin reached 29.1%, an increase of 2.22pct over the same period last year. Continue to optimize the structure of stores, closing an inefficient comprehensive store in Baotou in the first half of 18 years. Cost control has been very effective, and the expense rate has dropped to 14.81% during the period, reducing 0.98pct compared with the same period last year.
2. Acquire Chongqing Maoye and join with Chengdu stores to form scale effect.
The company completed the acquisition of Chongqing Maoye Department Store in the first quarter and expanded its business scope to Chongqing again. Chongqing stores and Chengdu stores, the company's headquarters, have joined forces to form economies of scale in the southwest. Chongqing Maoye store is located in Guanyinqiao, the golden business district, gathering 60% of the middle and high-end consumers. Considering the consumption power and preference of residents in Chengdu and Chongqing, which are significantly higher than the national average, the consumption driving force is strong. We believe that the company will benefit from a large-scale and chained layout. With the maturity of regional consumer awareness, the company will gradually release the driving force of performance growth.
3. The decline of consumption power in high-line cities is a drag on regional revenue performance.
Under the influence of the monetization of shed reform, the consumption power of residents in third-and fourth-tier cities has gradually declined. Affected by this, the company's revenue in Nanchong and Heze increased by-6.1% and-3.99% year-on-year in the first half of 2018, accounting for 2.42% and 0.93% of the company's revenue, respectively. In northwest China, the revenue of department stores in Hohhot and Baotou increased by-3.83% and-8.32% year-on-year, while the format of shopping malls maintained high growth, with revenue growth of 22.15% and 12.08% respectively. Consumption capacity in high-line areas continues to be under pressure, dragging down the company's overall performance.
Conclusion:
The company absorbed and merged Chongqing Maoye Department Store in the first quarter of 2018, and retroactively adjusted the statement. According to the public information, the historical data of our company has not been adjusted. Based on this, we predict that the company's operating income in 2018-20 will be 12.589 billion, 13.297 billion and 13.881 billion respectively, with unadjusted year-on-year growth rates of 7.05%, 5.62% and 4.39%, net profit of 1.201 billion, 1.292 billion and 1.352 billion, and unadjusted year-on-year growth rates of 10.47%, 7.58% and 4.62% respectively. Considering that the company deeply ploughs Chengdu and Chongqing, forming a chain of scale effect, the strong regional consumption power and mature consumption consciousness promote the sustained growth of the company's performance and give it a "recommended" rating.
Risk hints: the consumption of residents in third-and fourth-tier cities continues to be under pressure, the performance of the northwest region is lower than expected, and the integration of company stores is not as expected.