Performance review
2019 performance is higher than we expected.
The company announced its 2019 results: revenue of 11.993 billion yuan, an increase of 3.43% over the same period last year, and net profit of 84 million yuan, an increase of 1.03% over the same period last year, which is better than we expected, mainly driven by the increase in the number of stores. On a quarterly basis, Q1-Q4 revenue increased (decreased)-1.4%, 0.3%, 2.6%, 15.1%, respectively, and net profit increased (decreased) + 58.9%, 31.5%, 39.8%, respectively. At the same time, the company announced 1Q20 results, with revenue of 3.708 billion yuan, an increase of 10.67% over the same period last year, and a net profit of 66 million yuan, an increase of 35.85% over the same period last year, which is better than our expectation. We expect it to be mainly driven by factors such as the increase in residents eating at home during the epidemic.
Trend of development
1. Revenue growth stabilized in 2019, mainly driven by the increase in the number of stores. In 2019, the company's revenue increased by 3.43% compared with the same period last year, and five new / closed stores were opened / closed throughout the year. By the end of 2019, the company had 163 supermarket stores (4 of its own and 159 leased). From a regional point of view, revenue in Southwest and East China has increased, while that in South China and North China has declined. 1Q20's revenue increased by 10.67% year-on-year, and we expect to benefit mainly from the increase in residents' eating at home during the epidemic, leading to an increase in demand for fresh and daily necessities.
2. Profitability is basically the same. In 2019, the company's gross profit margin was 22.3%, slightly higher than the same period last year, with food gross profit margin rising by 0.84ppt and non-food gross profit margin falling by 4.93 ppt. During the period, the expense rate increased by 0.4ppt over the same period last year, and the sales expense rate increased by 0.2ppt over the same period last year, mainly due to the increase in rental fees, and the increase in management + R & D expenses rate by 0.2ppt, mainly due to the increase in depreciation, amortization and start-up expenses. Under the combined influence, the company's net interest rate was unchanged at 0.7%.
3. Follow up to pay attention to the improvement of business efficiency. In terms of exhibition stores, the company plans to open 20 new stores in 2020, focusing on advantageous areas and improving the success rate of opening stores through the establishment of incentive and restraint mechanisms. In terms of operation, the company plans to strengthen the building of fresh capacity and increase the proportion of self-purchased goods and self-owned brands. Considering the influence of the company's low performance base and non-operating factors, we expect the company's profit margin to fluctuate greatly in the future.
Profit forecast and valuation
Taking into account factors such as the increase in residents' eating at home, the earnings per share forecast of 2020 picks is raised by 13 percent to 0.12 picks. 14 yuan. The current share price corresponds to 2020 Universe, 30x 2021 33max, and 30x Pmax E. Maintain a neutral rating and raise the target price by 6% to 4.45 yuan based on earnings forecast adjustments, corresponding to 2020 Universe 32 times Pmax E in 2021, with 10% upside space.
Risk
The competition in the industry intensified and the performance of the new store was lower than expected.