The performance is below our expectations.
The company announced unaudited results for 2019: realized income of 11.658 billion yuan, an increase of 0.1%; net profit of 53 million yuan, or 0.13 yuan per share, down 16.4%, which was lower than we expected, mainly due to a sharp decline in comprehensive gross profit margin. In half a year, 1H19/2H19 's operating income is 2.5% compared with the same period last year, and its net profit is + 3.8% /-33.5%. The decline in performance in the second half of the year is relatively large, which is expected to be related to the intensification of market competition.
Trend of development
1, retail business with the same store fell 3.01%, the wholesale business is relatively sound. In 2019, the company's overall revenue fell-0.1% year-on-year, facing competitive pressure. Sub-segment: 1) Retail business: revenue fell 3.4% year-on-year, mainly due to the decline of 3.01% in same-store sales and the impact of store closures. Among them, revenue from comprehensive supermarkets, supermarkets and convenience stores are-3.1%,-3.1% and-4.9%, respectively. In terms of exhibition stores, the company opened 5 fresh convenience stores, closed 1 department store, 2 comprehensive supermarkets and 31 convenience stores, with a total of 178 stores by the end of 2019. 2) Wholesale business: revenue increased by 4.1% compared with the same period last year, mainly benefiting from the continuous adjustment of the commodity structure of e-commerce platform sales and the recovery of alcohol sales and the growth of daily chemical goods sales.
2. The gross profit margin has declined, and the net profit margin is basically flat. In 2019, the comprehensive gross profit margin fell 0.5ppt to 22.6% compared with the same period last year, and the gross profit margin of the main business was 14.5%, the same as the previous year. Among them, thanks to the optimization of commodity structure and the steady growth of online sales, the gross profit margin of direct retail business increased by 0.8ppt to 17.2% year-on-year, and that of wholesale business increased by 0.1ppt to 11.8% year-on-year. From the cost point of view, thanks to the adjustment and optimization of wholesale business promotion methods, the sales expense rate dropped to 16.7% year-on-year, while the management expense rate remained unchanged at 2.6% year-on-year. The final net profit margin was basically flat at 0.5% compared with the same period last year.
3. To explore the new retail transformation and omni-channel model, the effect still needs to be observed. At this stage, the company conforms to the consumption trend and actively seeks change to enhance market competitiveness. In terms of retail business, we will promote the upgrading of existing stores, upgrade 21 traditional convenience stores to fresh convenience stores in 2019, speed up the development of their own brands, and promote omni-channel integration and interactive drainage; in terms of wholesale business, continue to strengthen cooperation with major e-commerce mainstream platforms and promote the construction of a digital logistics system. At present, the retail industry is in a rapid iterative change, and the effect of the company's business adjustment still needs to be observed.
Profit forecast and valuation
In view of the increased competition in the industry and the impact of the epidemic, the earnings per share forecast for 2020 has been lowered by 35% to 0.11 yuan, and the earnings per share forecast for 2021 has been introduced. The current stock price corresponds to 2020e/2021e 8x/8x Phand E. Maintain its neutral rating and cut its target price by 20 per cent to HK $1.24 based on earnings forecasts, with 19 per cent room for a rise in 2020e/2021e 9x/9x Pamp E.
Risk
Consumption continues to be in the doldrums; competition in the industry further intensifies.