Deeply ploughing the leading state-owned retail industry in Shandong. ① is rich in business formats: the company covers department stores, large-scale comprehensive supermarkets and shopping centers; at the same time, it is engaged in a small number of commercial housing development business. By the end of 2022, there were 116 stores, including 45 department stores, 43 supermarkets, 3 shopping malls, 23 Huaxing shopping malls in Linqu, Weifang, 2 community stores, and 46 unlisted stores under Ginza Mall. ② business income is dominant, and recovery flexibility is excellent: in 2022, the main business income accounted for 99.1%, of which department store / supermarket / shopping center revenue accounted for 51.3%, 40.9%, 7.8%, respectively (63.8%, 29.4%, 6.8%, respectively); 1Q23's revenue of 1.64 billion yuan decreased by 5.18%, net profit of 90 million yuan increased by 62.3%, and net profit increased by 34% compared with 1Q19. ③ major shareholders continue to increase their holdings, employee stock ownership incentives are sufficient: in 2022, Maoye reduced its holdings and withdrew from the equity dispute. Lu Shang Group, a major shareholder, has continued to increase its holdings since 2010, and the proportion of shares held by the group and people acting in concert has increased from 26.99% to 39.96%. The company granted a total of 15.45 million stock options in November 2020 and September 2021. The employee stock ownership plan for the year 2020 will expire on October 15, 2023. As of 1Q23, 24.21 million shares are held, accounting for 4.65%.

The advantage of regional scale is significant, and there is room for the coordination of group resources. ① Shandong market has great consumption potential: Shandong is the second most populous province in the country, the third largest province of GDP and social zero, which provides a good support for the development of the retail industry. ② city multi-store three-dimensional layout, online and offline innovation vitality: three-dimensional layout to strengthen the scale advantage, focusing on the layout of Jinan, Weifang, Zibo, Binzhou, Taian, Dongying, Linyi and other places, 100 stores mature; the company to explore home, arrival, community group buying and other new models, build private flow pools, test live broadcast with goods, IP marketing and other measures to continuously promote online and offline integration During the epidemic, supermarkets continue to deepen supply chain reform and standardized operation, introduce online celebrity goods, introduce prepared dishes, etc.; buy 100 formats to speed up store adjustment, stores renovated and upgraded to create an experiential consumption scene, and the flat efficiency has been improved in 2020-22. ③ Group has coordinated resources, and the inter-industry competition remains to be solved: since 2013, the company has managed Ginza Mall retail stores, and there are still many high-quality assets not yet injected into the group level, such as part of the retail-related operating assets of Ginza Mall headquarters included in the unapproved asset injection plan in 2016 (rejected by Maoye Department), the equity interests of 18 subsidiary companies, and the Rizhao Ginza, Qilishan stores and Ginza Appliances that the company plans to acquire in April 2022.

Business improvement, profitability enhancement. Improvement in ① gross profit margin and expense rate: in 2020-22, the comprehensive gross profit margin of retail business increased from 25.9% to 28.2%, and the expense rate decreased from 37.31% to 36.43% during the period. The peak of ② capital expenditure has passed: with the slowdown of the pace of the company's expansion, capital expenditure has decreased from 800-1.2 billion yuan / year at its peak to about 200 million yuan / year. Excluding interest charges on lease liabilities, the financial expenses of 2021 and 2022 will each be 1.99 trillion yuan, which is slightly lower than that of 221 million yuan in 2020. ③ real estate business loss reduction: Qingdao Licang and Real Estate Flyover basically completed settlement in 2016, Qingdao Qianhao completed settlement in 2018, the company has no plans to develop new real estate projects for the time being, and the real estate business lost 41.75 million yuan in 2022, reducing losses compared with the previous year. We expect that the subsequent drag on the company's overall performance is expected to gradually fade.

Profit forecast and valuation. It is estimated that the income from 2023 to 2025 will be 5.7 billion yuan, 6 billion yuan and 6.3 billion yuan respectively, up 6.6%, 4.6% and 5.2% over the same period last year, and the net profit of returning home will be 245 million yuan, 274 million yuan and 322 million yuan respectively, up 1790%, 12.0% and 17.2% over the same period last year. The company will be given 15-18 times PE in 2023, corresponding to a reasonable value range of 7.07-8.48 yuan, with an investment rating of "better than the big market" for the first time.

Risk tips: regional competition intensifies, e-commerce diversion, store training is not as expected.