1. Summary of events
In the first half of 2020, the company achieved operating income of 2,345 million yuan, an increase of 11.94% over the previous year; realized net profit attributable to the parent company of 85 million yuan, a decrease of 24.67% over the previous year; realized non-net profit attributable to the parent company of 72 million yuan, an increase of 12.63% over the previous year; and realized net operating cash flow of 44 million yuan, an increase of 33.66% over the previous year.
2. Our analysis and judgment
(1) The scale growth rate declined sequentially in the first half of the year. Performance declined year-on-year due to the influence of a high base of equity transfers last year. It is optimistic that focusing on fresh food and store transformation strategies to improve store efficiency The company achieved total revenue of 2,345 million yuan in the first half of 2020, an increase of 250 million yuan over the same period of the previous year; of this, the retail industry contributed 2,260 million yuan as the main business, an increase of 13.41% over the same period last year, contributing 105.42% of the increase in revenue; other non-main businesses reached a total of 85 billion yuan in the first half of 2020, compared to last year There was a decrease of 14 million yuan over the same period, achieving a year-on-year increase of -13.73%. From this, it can be seen that the increase in the company's total revenue in the first half of the year mainly stemmed from the retail sector of its main business, and service-oriented revenue, including revenue such as supplier service fees, was affected by the pandemic and has not yet returned to the same period last year. Excluding the influencing factors of the Hangzhou, Zhejiang, and Shanghai transfers in the first half of 2019, the revenue from the rest of the main business actually increased 19.52% year-on-year, mainly due to the COVID-19 outbreak at the beginning of the year where the consumer consumption scenario in the first quarter was concentrated within households, which greatly increased demand for supermarkets that undertook the supply of essential consumer goods, and after domestic epidemic prevention and control entered the normalization stage in the second quarter, the position of supermarkets in essential consumer goods retail channels did not decline significantly. As a result, the company's main business achieved relatively rapid growth in the first half of the year.
Split on a quarterly basis, the 2020 Q1/Q2 company achieved total operating income of 1,388 million yuan respectively, up 2.15/035 billion yuan from the same period last year, achieving a year-on-year increase of 18.80%/3.71%, respectively. The sharp decline in the year-on-year growth rate in Q2 compared to Q1 was mainly due to the transformation of consumer consumption scenarios from previous centralization to decentralization after domestic epidemic prevention and control entered the normalization stage of domestic epidemic prevention and control, which is in line with expectations. It is expected that the catalytic effect of epidemic prevention and control in the second half of the year on supermarket same-store performance and the shortening of the cultivation period for new stores may go a step further As it weakens, the core driving force driving the company's size growth will return to regular factors such as improved floor space efficiency, accelerated showroom acceleration, and online business expansion.
From the perspective of the company's stores in the first half of 2020, as of the first half of 2020, the company had a total of 214 stores and opened 7 new stores, a net increase of 7 stores compared to the beginning of the year, and a net increase of 12 stores over the same period last year. The progress of showrooms was roughly the same as opening 6 new stores in the same period last year. Split by business type, as of the first half of 2020, the company had 124/90 supermarkets (including innovative stores) and small businesses, respectively, 5/2 from the beginning of the year, 1/11 more than the same period last year. By region, by the end of the first half of 2020, the company had opened 187/27 stores in Ningbo/other regions outside Ningbo, an increase of 7/0 from the beginning of the year, an increase of 11/1 over the same period last year.
Based on the above data, it can be seen that the company's showroom focus in the first half of the year was still to open a supermarket store with the main business format in Ningbo, a strong region. As of August 28, 2020, the company opened a new innovative store in Ningbo. It is expected that in the future, the company will continue to promote the transformation process of old stores while increasing the expansion of supermarket stores in Ningbo and consolidating the influence of its brand in the city.
Splitting the company's main business by business type, as of the first half of 2020, the company's supermarkets (including innovative stores) and small businesses achieved revenue of 2,032/228 million yuan respectively, up 204/059 million from the same period last year, achieving a year-on-year increase of 11.19%/35.04% respectively, contributing 77.58%/22.42% of the increase in main business revenue respectively. It can be seen from this that the increase in the company's main business revenue in the first half of the year was mainly due to the supermarket business format taking on the heavy responsibility of daily necessities during the pandemic to achieve rapid sales growth.Further split, the main reason for the decline in supermarket stores outside of Ningbo compared to the same period last year was due to the fact that the company completed the share transfer to a wholly-owned subsidiary in Hangzhou and Zhejiang in the first half of '19, which caused a difference in comparable caliber. As for small business stores outside of Ningbo, the negative growth in small business stores outside of Ningbo was mainly due to a sharp decrease in residents' outings during the pandemic and it was difficult for small businesses to bear the heavy responsibility of securing supply during the pandemic, which caused both passenger flow and customer unit prices to fall.
Splitting the company's main business by region, the company's stores located outside Ningbo/Ningbo achieved revenue of 2,011/249 billion yuan respectively, up 356/-393 million yuan from the same period last year, an increase of 21.52%/-27.12% over the same period last year. It can be seen from the revenue share that the company continues to use downtown Ningbo as its main battle zone, accounting for 89.00%/11.00% of revenue respectively, up 6.09/-6.09 percentage points from the same period last year. It is expected that in the future, the company will still use the Ningbo city area as a key development area, with a revenue share of or Further improvements are expected.
Splitting the company's main business by product category, food/fresh/daily necessities/knitwear products in various stores reached 1,193/8.01/2.45/21 billion yuan respectively in the first half of 2020, with changes of 1.78/1.89/-0.93/-10 billion yuan respectively over the same period last year, achieving year-on-year increases of 17.49% /30.88% /-27.53% /-31.82% respectively, contributing 67.38%/71.63%/-35.23%/-3.79% of revenue growth, respectively. The increase in revenue from the main retail business in the first half of 2020 was mainly due to the concentration of consumer consumption scenarios within households during the epidemic in the first half of 2020, which led to an increase in demand for fresh and other consumer products. On this basis, the company increased its online business development, which ultimately contributed to the rapid growth of food and fresh products in the first half of the year. As for standardized products such as daily necessities department stores and knitwear categories that were already impacted by e-commerce, the impact of the current epidemic showed an accelerated downward trend. It is expected that the company will continue to promote the internal product structure of stores in the future, focusing on fresh food and fresh products that can compete in a differentiated manner with e-commerce Food and other categories. Judging from the sales share of various products, as of the end of the first half of 2020, the company's food/fresh/daily necessities store/knitted products accounted for 52.81%/35.42%/10.82%/0.95% respectively, with changes of 1.92/4.78/-6.08/-0.63 percentage points from the same period last year. Through the sharp increase in the company's fresh product sales share, it can be seen that the product structure transformation that the company has promoted since last year to meet the needs of residents for “three meals a day” has reached a certain stage under the catalyst and support of the epidemic As a result, it is expected that in the future, the company will continue to increase the proportion of fresh products sold in stores and build its own competitiveness around fresh food.
As for performance, the company achieved a total net profit of 85 million yuan in the first half of 2020, a decrease of 28 million yuan over the same period of the previous year, a decrease of 24.67% over the same period of the previous year; the realized net profit returned to the mother was 72 million yuan, an increase of 80 million yuan over the same period of the previous year. The company confirmed a total of 120 million yuan of non-recurring profit and loss in this period, a decrease of 36 million yuan from the same period last year, mainly due to the fact that the company received 394.006 million yuan of equity transfer funds from Hangzhou Zhejiang Huadi Network Technology Co., Ltd. in the same period last year, and there was no corresponding payment this year. The non-recurring profit and loss for the current period mainly included government subsidies of 17 million yuan including current profit and loss and 42,800 yuan of non-current asset disposal losses. Split on a quarterly basis, in the first half of 2020, the company achieved net profit of 0.75/10 million yuan respectively in Q1/Q2 of 2020, an increase of 0.22/-49 million yuan respectively over the same period of the previous year. Q1/Q2 achieved net profit of 0.71/01 million yuan after deducting non-return to the mother, respectively, up 0.23/-015 million yuan from the same period last year. The sharp decline in net sales performance in the second quarter was mainly due to the company's transfer of shares in Hangzhou, Zhejiang, and Haihai in 19Q2, which dragged down the performance of the same store. Coupled with the fact that the number of new stores opened by the company in half a year was slightly lower than the same period last year, and the consumer consumption scenario changed from centralization to decentralization after the epidemic entered the normalization stage of prevention and control, causing the company's responsibility to guarantee the supply of necessities of life during the pandemic to weaken Q2, causing single-end revenue Q2 Same Due to a month-on-month decline in the relative growth rate, it is expected that the company's performance in the second half of the year may remain at a level similar to the same period last year when showrooms accelerate or the efficiency of same-store stores does not improve significantly, making it difficult to achieve growth exceeding expectations.
(2) The consolidated gross margin fell 0.99 pct in the first half of the year, and the cost ratio for the period fell by 0.36 pct. The company's comprehensive gross margin for the first half of 2020 was 23.71%, down 0.99 percentage points from the same period last year. Among them, the gross margin of the main retail sector reached 20.83%, a decrease of 0.14 percentage points from the previous year. By product category, as of the first half of 2020, the gross margin level of the company's food/fresh/daily/daily necessities store/knitted products was 22.07%/17.58%/24.41%/32.71%, respectively, compared with the same period last year: 0.85/0.22/-1.21/-0.70/-0.14 percentage points respectively; by region and business type, the company's supermarket stores/small business stores in Ningbo achieved gross profit margins of 21.30/ 22.48% respectively, up -0.25/1.47 percentage points from the same period last year; the company's Ningbo City, respectively; the company's Ningbo city achieved gross profit margins of 21.30/ 22.48% respectively over the same period last year; the company's Ningbo City, respectively; the company's Ningbo City, Ningbo City, respectively; The gross margins of supermarket stores/small business stores in other regions were 15.82%/19.91%, respectively, up -2.49/-0.49 percentage points from the same period last year. Based on the above data analysis, the decline in gross margin of the company's main business in the first half of 2020 was due, on the one hand, to an increase in the share of sales of fresh products with relatively low gross margin and a significant decline in knitting products and daily necessities department stores with high gross margin levels. On the other hand, it was due to the decline in other revenue, including high-margin service-oriented revenue, affected by the epidemic in the first half of the year.
The company's net sales interest rate for the first half of 2020 was 3.60%, down 1.75 percentage points from the previous year; the comprehensive expense ratio for the period was 19.14%, down 0.36 percentage points from the same period last year. Specifically, the sales/management/finance expense ratio for the first half of 2020 recorded 18.07%/3.14%/-2.07%, a change of -0.90/0.24/0.29 percentage points over the same period last year. As for the sales expenses ratio, the company's sales expenses in the first half of 2020 increased sharply by 27 million yuan (YOY 6.64%) from the previous year to 424 million yuan, mainly due to the increase in packaging and low-value consumables due to the increase in the omni-channel transformation of stores, and the increase in system service fees and online delivery fees. As for the management expenses ratio, the company's management expenses in the first half of 2020 increased by 13 million yuan (YOY 21.20%), mainly because it is currently in a critical period of transformation and upgrading, continuously improving the project implementation model, increasing talent reserves, and increasing management expenses accordingly As for the financial expense ratio, the company's net revenue from financial expenses in the first half of 2020 decreased by 922,900 yuan (YOY 1.86%) compared to the same period last year, mainly due to an increase in financial institution fees.
(3) Innovative retail store transformation continues to advance. Digital intelligent upgrades help expand online door-to-home business. Although the COVID-19 pandemic has had a great negative impact on social and economic production, the entire company has consolidated its full strength to continue to promote innovative retail store transformation. By the end of the first half of 2020, the company completed 45 store renovations. On the one hand, the customer shopping environment has improved qualitatively, and on the other hand, the public has improved the company's brand image through store transformation and upgrading. By the end of the first half of the year, 48 of the company's stores had reached the new retail 1.0 store standard. It is expected that in the second half of the year, the company will continue to push forward the store transformation process to improve the efficiency of the same stores. While gradually implementing store transformation, the company is also actively using digital means to optimize the product structure. Through NPS customer questionnaires and data analysis, the company introduced various influencer products, especially fresh and quasi-fresh products, and carried out a number of pilot projects, such as snack shop projects, fishery ice breaking projects, shortterm insurance product ice breaking projects, and a huge increase in fishery products, pasta, and cooked food items, helping the company complete the product structure transformation surrounding residents' “three meals a day” scenario. While offline stores continue to be transformed and optimized, the company also used online apps and applet functions to support online channel sales by completing methods and means such as expanding the online live delivery function. During the reporting period, the company successfully developed a new “Sanjiang Member Group Mini Program” to support the business model of community groups, and completed the “Are You Hungry?” channel access. We anticipate that the company's comparable store efficiency and passenger flow may be further improved under the three favorable support of store transformation and upgrading, optimization of in-store product structure, and expansion of online channels, contributing incrementally to the company's continuous growth.
(4) Introduce “Are You Hungry?” to achieve omni-channel unified management and explore the potential for cooperation with Ali in all aspects. After successfully completing the fixed increase plan to introduce Alibaba Group as a strategic shareholder in mid-18, the company has carried out comprehensive in-depth cooperation with Ali in various fields such as operating capital, store digitalization, product supply chain, online business, and innovative business formats. First, from the perspective of store digitalization, the company added technology such as mature self-service checkout machines cultivated in Hema Xiansheng's new retail stores and digitization of store product barcode information to the store, while achieving a high degree of digital upgrading of the store, while greatly improving the consumer experience and employee work efficiency. Second, with regard to the commodity supply chain, since the company introduced Alibaba Group as a strategic shareholder, Alibaba Group has become the company's largest purchasing supplier. The share of total purchases has further increased to 5.36% from 4.67% in 2018. It can be seen that the company has made full use of the global commodity supply chain and domestic fresh products supply chain built by Ali. While enriching the product categories of stores, it has increased the proportion of high-end products and upgraded the quality of the supply chain. In addition, the company is also actively cooperating with Ali in the field of online delivery, using the company's Hema Xiansheng store in Ningbo and Ali's Taoxianda system to cooperate with the company's own app to expand the online home delivery business in three ways, fully meeting the various needs of different consumer groups. In the first half of 2020, the company further expanded “Taoxianda” delivery stores. By the end of the reporting period, a total of 52 stores had launched the service. At the same time, the revised “Sanjiang Yuncai” app developed by the company experienced a second optimization after it was officially connected to Ali Zhongtai last year, and the company also successfully introduced the “Are You Hungry?” platform during the reporting period, which achieved unified management across all channels and improved the customer's online shopping experience to a certain extent. Looking at the long term, we believe that future cooperation between the company and Ali in the retail field is likely to further develop, empowering the company in various fields such as digital technology, supply chains, and even store business formats to help the company achieve sustainable scale and performance.
3. Investment recommendations
The company insisted on its layout within Zhejiang Province and expanded to surrounding areas with the Ningbo region as the core. By the end of the reporting period, the number of stores in the province had reached 214. Combining the fact that the company has already opened 7 new stores in the first half of 2020 and that the company's store renovation plan with excellent results in 19 is likely to continue in 20, and considering the fact that the company's size and net performance in the first half of 2020 have already achieved relatively rapid growth, we expect the company to achieve revenue of 44.15/46.98/4.889 billion yuan in 2020/2021/2022, and net profit of 151/1.58/175 million yuan, corresponding to PS1.77/1.66/1.59 times, corresponding to PS1.77/1.66/1.59 times, for EPS 0.28/0.29/0.32 yuan/share, corresponding PE is 52/49/45 times, maintaining the “recommended rating”.
4. Risk warning
The risk of competition diversion in the consumer market; the risk of increased competition in the retail industry; the risk that showrooms fall short of expectations.