2018 performance is in line with expectations
Hualian Comprehensive Super League announced its 2018 results: operating income was 11.595 billion yuan, down 1.47% from the same period last year; net profit from its mother was 83.3987 million yuan, up 6.18% from the same period last year, corresponding to 0.13 yuan per share, which is basically in line with our expectations, and non-operating factors bring short-term fluctuations. At the same time, the 1Q19 performance was announced, with revenue of 3.35 billion yuan, down 1.36% from the same period last year; net profit of 48.329 million yuan, an increase of 58.88% over the same period last year, and a rise in gross profit margin to release performance flexibility.
Trend of development
1. The revenue end is still under pressure. Revenue fell 1.47% in 2018, mainly due to the impact of the sale of wholly-owned subsidiary Hualian boutique in 2017, of which revenue from Life supermarket and High-end supermarket were + 2% and 42% respectively compared with the same period last year. From a regional point of view, revenue in South China and Northeast China has increased, while that in East and North China has declined. The company opened / closed 2 new stores in 2018, and the store expansion rate was slower than the plan at the beginning of the year (20-30 stores). By the end of 2018, the company had 160 supermarket stores (4 stores and 156 leases). 1Q2019's revenue fell-1.36% year-on-year, and the revenue side is still under some pressure.
2. Non-operating factors bring short-term fluctuations. Benefiting from the savings in operating costs and sales expenses brought about by the sale of Hualian boutiques, the company's gross profit margin increased to 22.2% in 2018, and the sales expense rate saved 0.2ppt to 18.2%. At the same time, the financial expense rate increased 0.1ppt compared with the same period last year, mainly due to the increase in interest expenses. In addition, non-operating expenses in 2018 decreased significantly by 200 million yuan compared with 2017, mainly due to the decrease in damage and scrap caused by the disposal of loss-making stores, while investment income decreased by nearly 300 million yuan compared with the same period last year due to the high base in the same period last year. And the increase in reparations led to an increase in non-operating income of 25 million yuan. Net profit margin rose 0.1ppt to 0.7 per cent year-on-year. 19Q1's profitability improved, with gross margin rising 1.9ppt to 22.7% and net profit margin rising 0.5ppt to 1.4% year-on-year.
3. Pay attention to the progress of the operation improvement of the main business of the supermarket, but due to the influence of low base and non-operating factors, it is expected that the profit end will fluctuate greatly. 2019 company will continue to adhere to the regional leading strategy and plans to increase store density in advantageous areas (10-20 new stores are planned in 2019, with an estimated investment of 20 million yuan per store). At the same time, we will strengthen innovation on the basis of the existing comprehensive supermarkets, enrich community retail functions, and recently acquire a 100% stake in Beijing Baihaoji Community Department Store for 208 million yuan (operating three community department stores with revenue / net profit of 380 million yuan / 20.79 million yuan respectively in 2017). The follow-up is expected to contribute to the company's performance.
Profit forecast
In view of the fact that CPI's moderate upside is expected to lead to an improvement in the company's performance, it has raised its profit forecast of 8.5% of 2019 Universe 20e to 0.09 Universe 0.11 yuan.
Valuation and suggestion
The current share price remains neutral at 50 times Pamp E in 19 years, but increases the target price by 7% to 4.6 yuan based on earnings forecast adjustments, and there is room for a 2% increase in the target price to 50 times Phand E in 19 years.
Risk
The training period of new stores has been extended, and labor and rental costs have continued to rise.