Incident: Sanjiang Shopping released the “2018 Annual Report”. It has now achieved revenue of 4.133 billion yuan for the full year of 2018, an increase of 9.64% over the previous year; operating profit of 160 million yuan, an increase of 10.67% over the previous year; and net profit attributable to shareholders of listed companies was 112 million yuan, an increase of 2.7% over the previous year. Among them, Q4 achieved revenue of 991 million yuan, an increase of 9.38% over the previous year; Q4 achieved net profit attributable to shareholders of listed companies of 32 million yuan, an increase of 128.57% over the previous year.
The performance was in line with expectations, and the fresh food business performed brilliantly. During the reporting period, the company stepped up the process of opening new stores and remodeling stores, achieving revenue of 4.133 billion yuan, an increase of 9.64% over the previous year. In terms of categories, fresh food and food achieved high increases, with year-on-year increases of 30.75% and 7.58%, respectively. The company strengthened its ability to operate chilled, short-term food, modified the fresh shopping environment, increased base products, and implemented strict food safety inspections; department store and textile revenue declined markedly by -9.52% and -15.04% year-on-year due to adjustments in the company's operations. During the reporting period, the company actively adjusted the store layout, speeded up the opening of stores, and reasonably shut down inefficient stores. Thirty-nine new stores were opened throughout the year, of which 34 were small-sized stores and 6 were closed. By the end of the reporting period, the company had a total of 202 stores, including 74 small-scale stores and 128 supermarket stores.
Net profit growth narrowed as gross margins rose, interest rates rose. The comprehensive gross margin reached 24.03% during the reporting period, an increase of 0.5 pct over the previous year. Among them, the gross margins for food and fresh food were 21.01% and 16.26% respectively, up 0.87 pct and 0.6 pct respectively. The main reason was that the company optimized base products, promoted product development, and increased gross profit brought about by the operation of Japanese fresh products, while continuously reducing costs through base procurement and source procurement, improving cold chain transportation and management to control losses. The cost rate during the reporting period increased by 0.52 pct compared to the same period last year. Among them, the sales expenses rate increased by 0.78 pct and the management expenses rate increased by 0.2 pct. This was due to investment in opening new stores and remodeling stores, as well as an increase in talent reserve expenses. The increase in expenses caused the growth rate of net profit to slow down somewhat.
Product adjustments and logistics construction have accelerated the transformation to fresh supermarkets in new retail communities. The company enriches fresh products, implements source procurement, accurately selects products, and strives to achieve the transformation of fresh supermarkets in new retail communities. At the same time, the company has built a multi-level multi-warehouse logistics platform for warehousing and logistics, striving to become a large-scale regional logistics center that satisfies new retail communities with efficient operation, digitalization and a high degree of automation.
Profit forecast and investment rating: We maintain the company's performance expectations. We expect Sanjiang Shopping to achieve revenue of 42.45/44.46/4647 billion yuan in 19/20/21, a growth rate of 2.7%/4.73%/4.52%, and achieved net profit of 1.1/1.18/124 million during the same period, a year-on-year growth rate of -1.43%/7.33%/4.61%, EPS is 0.2/0.22/0.23, corresponding PE is 67.2/62.61/59.86, covering the “recommended” rating for the first time.
Risk warning: Market competition is intensifying, and showrooms are falling short of expectations.