Performance review

1Q23 performance is in line with our expectations

The company announced 1Q23 results: achieved revenue of 320 million yuan, a decrease of 9.9%; Guimu's net profit was 120 million yuan, a decrease of 14.4%. Net profit after deducting non-recurring profit and loss was 100 million yuan, an increase of 29.2% over the same period, which is basically in line with our expectations. Non-recurring profit and loss mainly comes from government subsidies and gains and losses from changes in fair value and investment income.

Development trends

1. Under the turmoil of the epidemic and the influence of industry competition, 1Q revenue is still under pressure. The company achieved revenue of 320 million yuan in 1Q23, down 9.9% from the same period, mainly because offline channels were still disrupted by the epidemic at the beginning of the year. As the impact of the epidemic gradually subsided, the company's passenger flow in various markets gradually picked up during the Spring Festival, and the passenger flow in the Haining headquarters market has returned to 2019 levels. In the future, the company plans to increase investment in marketing to stimulate the recovery of the main business. According to the company's official account, the company plans to host 13 industrial events in 2023 (vs. 9 in 2022).

2. Marketing investment increased significantly, and the decline in non-recurring profit and loss dragged down net profit performance. The company's gross margin increased by 2.8 ppt to 52.2% in 1Q23. On the cost side, the company's expense rate increased 5.7ppt to 14.6% during the 1Q23 period; among them, the sales expense rate increased 4.2ppt to 7.1%. We expect the company to increase marketing investment after the epidemic. According to the company's official account, the company plans to add more than 100 million yuan in marketing expenses in 2023 to help the industry recover; the management and R&D expenses rate will increase by 1.9 ppt to 9.0%; and the financial expenses rate will be reduced by 0.4 ppt to -1.5%. Credit impairment losses also fell by 202.3%, mainly due to the recovery of the company's accounts receivable to offset bad debt preparations. In terms of non-recurring profit and loss, the company's non-recurring profit and loss fell 69.7% to $0.2 billion, mainly due to changes in fair value, profit and loss and investment income falling 91.1%. Under the combined influence, the net interest rate to the mother of 1Q23 fell 2.0ppt to 38.6%; after deducting the non-net interest rate, the same increase was 9.9ppt to 32.6%.

3. Focus on the transformation and upgrading of the company's operations and the promotion of diversified business. 1) Online integration: The company continues to promote the operation and development of the official supply chain platform. In 2022, Picheng carefully selected leading platform service experts to bring goods GMV exceeding 140 million. At the beginning of 2023, the Tencent Video Industry Belt in Haining China Leather City was officially signed and launched. In the future, the company plans to continue developing live e-commerce to promote online integration. 2) Overseas business: The company promoted overseas business expansion in the first quarter, and launched the Russian cross-border e-commerce project in Haining Leather City in February. In the future, the company plans to select high-quality overseas brands to join Picheng's carefully selected official cross-border stores; 3) Business diversification: The company will steadily promote financial business and complete the inspection work of the first batch of private finance centers in Zhejiang Province in accordance with regulatory requirements. In terms of health business, in 2023, the company will expand into segments such as child rehabilitation, critical care rehabilitation, and orthopedic rehabilitation to improve the quality of medical services and the efficiency of hospital management.

Profit forecasting and valuation

Keep profit forecasts mostly unchanged. The current stock price corresponds to a price-earnings ratio of 25 times/25 times 2024 in 2023/2024.

Maintain a neutral rating. Considering the valuation switch, the target price was raised by 14% to 4.8 yuan, which corresponds to the price-earnings ratio of 24 times/24 times in 2023/2024, and there is room for a 3% decline.

risks

Competition in the industry continues to intensify; online transactions are being diverted; Big Health's business is progressing less than expected.