Results for the first three quarters of 2019 are in line with our expectations
Dashang Co., Ltd. announced its results for the first three quarters of 2019: revenue was 16.749 billion yuan, down 8.8% from the same period last year; net profit from its mother was 837 million yuan, up 6.5% from the same period last year, corresponding to 2.85 yuan per share; net profit after deduction fell 4.16% from the same period last year, which is basically in line with our expectations. From a quarterly point of view, 2019Q1/Q2/Q3 revenue is-9.0%, respectively, compared with the same period last year. The net profit of home ownership is + 10.2%, 5.8%, 17.8%, respectively.
Trend of development
1. Revenue is affected by the decline in physical retail and the slowdown in local economic growth. Revenue in the first three quarters fell 8.8% from the same period last year, including a 7.3% decline in the third quarter alone. In terms of business format, the revenue of department stores and supermarkets in Dalian, which account for a relatively high proportion of revenue, in the first three quarters are-8.7%, 16.77%, 18.58%, and 11.81%, respectively. We judge that the downward pressure on physical retail is still great in the northeast and other areas where the company's business is more concentrated. In addition, we expect revenue-side performance to be partly affected by the company's initiative to promote sales policy adjustments. As for the exhibition store, there are no new stores in Q3 and 1 clean shop.
2. The overall profitability is stable. The gross profit margin of sales in the first three quarters was 26.5%, an increase of 0.9ppt over the same period last year. From the expense point of view, the total rate of sales expenses, management and R & D expenses, and financial expenses are basically the same as the same period last year. In addition, the loss of asset impairment was affected by the increase in provision for impairment, which increased by 418% to 72.459 million yuan compared with the same period last year. The final net profit margin rose 0.7ppt to 5.0 per cent year-on-year, while non-net profit margin rose 0.2ppt to 4.5 per cent year-on-year. Among them, non-recurrent gains and losses are mainly due to the impact of the disposal of non-current assets. The sale of self-owned property in the current period led to a substantial increase in asset disposal income by 2489% to 61.5985 million yuan compared with the same period last year.
3. Follow up to pay attention to the measures to improve the quality and efficiency of the company's operation. At this stage, facing the overall downward pressure of physical retail and the slowdown of regional economic growth, the company actively promotes reform and efficiency, on the one hand, to upgrade stores and optimize the mix of goods sold; on the other hand, to promote cost control and improve the overall operational efficiency. We believe that the company, as the retail leader in Northeast China and Henan Province, has more than 140 outlets located in the core business district, with rich property assets and stable multi-format operation capabilities.
Profit forecast and valuation
Based on the impact of increased competition in the physical retail industry, the revenue forecast for 2019-20 was lowered to 21.669 billion yuan / 21.237 billion yuan, and the operating cost forecast was lowered at the same time, and the final profit forecast was lowered by 0.5% 1.6% to 2.93% 2.99 yuan per share. The current share price corresponds to a price-to-earnings ratio of 9.0 times / 8.8 times in 2019 / 2020. Maintain the outperform industry rating, but due to the earnings forecast adjustment, we lowered the target price by 4.1% to 35.00 yuan, corresponding to 11.9 times 2019 price-to-earnings ratio and 11.7 times 2020 price-to-earnings ratio, which has 33.2% upward space compared with the current stock price.
Risk.
Regional economic growth continues to slow down, and industry competition intensifies.