1H20 performance is in line with our expectations
Hualian Comprehensive Super announced its results for the first half of 2020: revenue was 4.087 billion yuan, down 33.0% from the same period last year (excluding the actual year-on-year growth of 5.95% affected by the implementation of the new income criteria). The net profit of returning to the mother was 83 million yuan, an increase of 49.0% over the same period last year, corresponding to 0.12 yuan per share. Deducting the non-return net profit of 80 million yuan, an increase of 70.5% over the same period last year, which is basically in line with our expectations. Among them, the non-recurrent profit and loss mainly comes from the profit and loss of disposal of non-current assets, government subsidies and the income of financial assets held by companies. From a quarterly point of view, 2020Q1/Q2 revenue increased by 35.8% compared with the same period last year, while net profit increased by 134.4%. The rapid growth of Q2 net profit is mainly due to the increase of government subsidies.
Trend of development
1. 1H20 revenue fell 33.0% compared with the same period last year. Excluding the impact of the implementation of the new income guidelines, it increased by 5.95% in real terms compared with the same period last year. From a regional point of view, 1H20's revenue in East China, Central China and Northeast China declined, while revenue in North China, South China, Northwest and Southwest increased, of which North China led the way in year-on-year growth of 24.4% (excluding the impact of the implementation of the new income guidelines). We believe that it is mainly driven by the increase in the demand for fresh and daily necessities caused by the increase in the frequency of residents eating at home during the epidemic. In terms of exhibition stores, 1H20 opened / closed one new store, and by the end of the reporting period, there were a total of 165stores (156Life supermarkets and 9 high-end supermarkets).
2. The net interest rate has increased. 1H20's gross profit margin was 33.4%, up 10.9ppt from a year earlier, mainly due to the implementation of the new revenue guidelines. During the 1H20 period, the expense rate was 31.5%, an increase of 9.3ppt over the same period last year, of which the sales expense rate was 26.3%, an increase of 7.9ppt over the same period last year. During the epidemic, the company actively strived for rent, electricity, social security and other related deductions to control the cost level; the management + R & D expense rate was 3.7%, up 1.1 ppt from the same period last year; and the financial expense rate was 1.4%, up 0.2ppt over the same period last year. Under the combined influence, 1H20's net profit margin increased to 2.0% year-on-year by 1.1ppt. Of this total, Q2 net profit rose to 4.6 per cent from a year earlier.
3. Follow up and pay attention to the internal upgrading and efficiency improvement of the company. 1) commodity procurement: the company will further improve the proportion of factory-based direct mining, we think it is expected to further strengthen the fresh management capacity and reduce procurement costs; 2) logistics supply chain: speed up the construction of warehousing and logistics, self-built fresh processing and distribution centers, the company expects some areas to be put into operation by the end of the year. 3) Marketing: the company's layout of online retail, the development of a variety of online marketing activities and promotion channels, we think it will help to enhance the stickiness of members and expand the ability of new members.
Profit forecast and valuation
Considering the improvement of the company's performance as a Minsheng supermarket industry during the epidemic, the company raised its 2020 Universe profit forecast by 4% to 0.13 Sterling 0.14 yuan in 2021. The current share price corresponds to 2020 Universe, 37Unix 2021, and 33 times the price of PUnix E. Maintain the neutral rating, raising the target price by 7% to 4.76 yuan, corresponding to 2020, 2021, 38 Universe, 35 times Pmax E, which is 2% higher than the current share price.
Risk.
The competition in the industry intensifies; the effect of business upgrading is not as good as expected.