3Q20 performance is lower than we expected.
The company announced 3Q20 results: 1-3Q revenue of 2.999 billion yuan in 2020, an increase of 2.9% over the same period last year; net profit of-38 million yuan, a decrease of 349.5% over the same period last year; and deduction of non-return net profit of-72 million yuan, a decrease of 64 million yuan over the same period last year. Of this total, 3Q20's single-quarter income was 863 million yuan, down 1.63% from the same period last year; the net profit was-50 million yuan, a decrease of 21 million yuan over the same period last year; and the non-return net profit was-62 million yuan, a decrease of 25 million yuan compared with the same period last year.
The performance is lower than we expected, which we believe is mainly due to the company's accelerated store expansion, brand upgrading of "fresh snacks" in the second half of the year, and increased investment in marketing and publicity.
Trend of development
The profit level is under short-term pressure, and new channels may maintain rapid growth. 3Q20's off-season income was lacklustre and its net profit was negative. According to our research, the performance of the company's stores is relatively flat, which is lower than we expected, but the company's new channel e-commerce / special channel is developing rapidly, and its e-commerce revenue may achieve more than 50% year-on-year growth in the first half of the year. The company said that it will continue to distribute live e-commerce in the future to cope with changes in traditional shopping and consumption scenarios.
3Q20 gross profit margin is under pressure compared with the same period last year, and the sales expense rate is high. 3Q20's gross profit margin decreased 1.2ppt compared with the same period last year. We believe that the main reason for the pressure on gross profit margin is that the e-commerce channel with relatively low gross profit margin is growing faster, and the second and third quarters are the company's traditional off-season of sales, making it difficult to show economies of scale. The rate of 3Q20 sales expenses was 38.23%, an increase of 1.5ppt over the same period last year. In the second quarter of this year, the company hired a new spokesman and launched "fresh snacks" to upgrade its brand strategy. we believe that the company has increased its expenses in order to promote transformation and upgrading, which has led to an increase in the rate of expenses. Under the strategic background of expanding the franchise, we expect that the company may continue to have a high rate of sales expenses in the future in order to attract franchisees to achieve national expansion.
Its own APP enable endogenous growth, join open enable extension growth, e-commerce and franchise performance need to be further observed. The company said that in September this year, about 80% of the stores have achieved effective docking with the company's own APP, and APP will continue to play the role of a closed-loop core. Through multi-form business models such as APP Mall and APP takeout, we will strive to tap the potential of members and achieve breakthroughs and growth in online business. At present, the company is making great efforts to promote all-round joining, relax the conditions for joining outside the port, and gradually increase the proportion of ports and allied stores. In addition, the company said that the new supply chain system is expected to be launched in the fourth quarter of this year, or will further promote the layout of this system. We believe that the recovery in store performance is still under pressure, but the company may benefit from the current good momentum of opening stores to gradually achieve the goal of store expansion, and if the 2021 epidemic is well controlled, the company may enjoy the dividend of store expansion. However, the overall sales experience of joining stores needs to be further improved.
Profit forecast and valuation
We expect that it will take some time for the same store to recover under the epidemic, and the joining stores in other provinces are still in the early stage of market testing, so we downgrade the 2020 Greater 2021 net profit forecast of 55.4% to 51 million yuan / 133 million yuan. The target price will be reduced by 16.3% to 13.4 yuan, corresponding to 0.87 times of 2020 Citrus 21, and the current share price will correspond to 0.81 times of 2020 Universe, which has 7.5% upside compared to the target price. Maintain a neutral rating.
Risk.
Raw material prices fluctuate, industry competition intensifies, franchisee management risk, regional expansion risk, food safety incident, COVID-19 epidemic brings uncertainty to store performance.