The results for the first three quarters of 2020 are higher than we expected.
The company announced its results for the first three quarters of 2020: revenue was 6.088 billion yuan, down 34.45% from the same period last year; net profit from its mother was 117 million yuan, up 87.53% from the same period last year, corresponding to 0.18 yuan per share; net profit after deducting 94 million yuan, up 74.02% from the same period last year, was better than our expectation, mainly due to the decline in rent and electricity charges, social security waivers and financial expenses. From a quarterly point of view, 2020Q1/Q2/Q3 revenue is + 10.7% Universe 86.2% Universe 37.3%, and homing net profit is + 35.8% Universe 134.4% Plus 413.1% respectively. The rapid growth of Q3 net profit is mainly due to the increase in various subsidies given by the government.
Trend of development
1. Revenue in the first three quarters was-34.45% compared with the same period last year. Among them, Q3 revenue decreased by-37.3% compared with the same period last year, which is better than Q2. From a regional point of view, revenue in North China and Northwest China, which account for a relatively high proportion of revenue, increased by 16.44% and 8.20% respectively compared with the same period last year, with a good performance, but revenue in Central and East China fell by 18.08% and 9.11% respectively, which we expect to be related to increased competition in the regional market. In terms of exhibition stores, in the first three quarters, 11 Universe opened / closed Life supermarket, with a net increase of 10 stores over the beginning of the year. By the end of the reporting period, the company had 173 stores (164 Life supermarkets and 9 high-end supermarkets). The company expects 6 new Life supermarkets to be opened in Q4, and the number of new stores for the whole year is expected to be slightly lower than the target of opening about 20 new stores at the beginning of the year.
2. Improvement of profitability. In the first three quarters, the gross profit margin increased to 32.62% year-on-year, mainly due to the impact of the company's implementation of the new revenue policy, and operating costs fell sharply. On the expense side, the sales expense rate in the first three quarters increased by 7.9ppt to 25.9% compared with the same period last year, and the management expense rate increased by 1.2ppt to 3.7% year-on-year. In the end, net profit margin in the first three quarters rose 1.3ppt to 1.9 per cent year-on-year, while net profit margin after deduction rose 1ppt to 1.5 per cent year-on-year.
3. Follow the company's fresh business, supply chain construction and Qinghai China Resources acquisition project progress.
The company has increased the proportion of factory-based direct mining, optimized procurement costs and enriched the variety of self-collected goods, and strengthened the fresh management capacity by introducing new incentive mechanisms. We expect to gradually improve the sales scale and profitability of the company's fresh goods. In terms of supply chain, the company has accelerated the construction of warehousing and logistics, and the dry warehouses in key areas have been operating normally; to speed up the construction of self-built fresh processing and distribution centers, we expect some areas to start operation this year. On August 21, the company completed the acquisition of 100% equity in Qinghai China Resources Wanjia Life supermarket, which we believe will help the company to further enhance its business scale and market share in Qinghai and enhance its market competitiveness.
Profit forecast and valuation
In view of the impact of the decline in revenue figures as a result of the company's implementation of the new revenue policy, we reduce our revenue forecast for 2020-21 by 22.7% 18.7% to 7.82 billion / 9.55 billion yuan. Considering the improvement of the industry performance of Minsheng supermarket where the company is located and the improvement of the company's operating efficiency during the epidemic, the EPS forecast for 2020-21 has been raised by 8.5% to 0.14 yuan and 0.15 yuan, and the current stock price corresponds to a price-to-earnings ratio of 32 times 2021 / 30 times in 2021. To maintain a neutral rating, in view of the large fluctuations in the company's historical earnings level, we maintain the target price of 4.76 yuan, corresponding to a price-to-earnings ratio of 34 times earnings in 2020 / 2021, which is 8.7% higher than the current share price.
Risk
The competition in the industry intensified; the performance growth of M & A projects fell short of expectations.