The results in the first three quarters of 2019 are in line with our expectations
Hualian Comprehensive Super League announced its results for the first three quarters of 2019: revenue was 9.288 billion yuan, up 0.5% from the same period last year; net profit from home was 62 million yuan, down 7.9% from the same period last year, corresponding to 0.09 yuan per share, which was basically in line with our expectations; net profit after deducting 54 million yuan, down 23.4% from the same period last year. From a quarterly point of view, 2019Q1/Q2/Q3 revenue is-1.4% and net profit is + 58.9% and 31.5%, respectively, compared with the same period last year.
Trend of development
1. Q3 revenue growth picked up slightly. Revenue in the first three quarters was + 0.46% year-on-year, mainly due to the increase in stores, of which Q3 revenue was + 2.6% year-on-year, slightly picking up. From a regional point of view, revenue in the first three quarters of North China, which accounts for a relatively high proportion of revenue, is + 0.89% compared with the same period last year, and revenue in the northwest region is + 2.3% year-on-year, which is a good performance, but revenue in the southwest region is-2.19% year-on-year, which is expected to be related to increased competition in the regional market. In terms of exhibition stores, 7 / 2 life supermarkets were opened / closed in the first three quarters, and the total number of stores increased by 5 to 165 compared with the beginning of the year. The company expects four new life supermarkets to be opened in Q4, basically meeting the target of opening 10-20 new stores for the whole year at the beginning of the year.
2. Cost control needs to be strengthened. In the first three quarters, the composite gross profit margin increased by 0.7ppt to 21.9% compared with the same period last year. From the expense point of view, the sales expense rate increased to 18.0% year-on-year, mainly due to the increase in new stores and promotion fees; the total management expense rate increased to 2.5% compared with the same period last year, mainly due to the increase in personnel costs; and the financial expense rate increased to 1.3% year-on-year, which is related to the increase in financing costs. In addition, non-operating expenses decreased significantly by 74.9% (the absolute amount decreased by 26.33 million yuan compared with the same period last year), benefiting from the decrease in the disposal of non-current assets and the loss of lease surrender compared with the same period last year. The final net profit margin fell 0.1ppt to 0.7 per cent year-on-year, while net profit margin after deducting non-profit fell 0.2ppt to 0.6 per cent year-on-year.
3. Follow up to pay attention to the improvement of the efficiency of the main business of the supermarket. At this stage, the company focuses on the main business of the supermarket, steadily promotes the expansion of stores, at the same time, targeted to enhance the operational capacity of fresh products, and orderly development of community group buying and other innovative services. However, the profit end is affected or fluctuated by low base and non-operating factors, so we should pay attention to the progress of improving the efficiency of the main business of the company's supermarket.
Profit forecast and valuation
Maintain profit forecasts. The current stock price corresponds to 41.1 times / 34.6 times earnings in 2019 / 2020. Maintain a neutral rating, but due to the downside of the overall risk appetite of the industry, we cut our target price by 6.5% to 4.30 yuan, corresponding to 47.8 times 2019 price-to-earnings ratio and 39.1 times 2020 price-to-earnings ratio, which has 14.7% upward space compared with the current stock price.
Risk.
Competition in the industry intensified; the macro-economy continued to decline.