The company is a leading retail company in East China. Net profit for the first half of the year turned a loss into a profit. The company achieved revenue of 16.332 billion yuan/yoy -4.54% in the first half of the year; net profit of 328 million yuan; loss of 116 million yuan in the same period last year, turning losses into profits. Benefiting from the recovery of the offline consumption scenario after the epidemic, the recovery in the company's performance continues to accelerate.

By business type, the comprehensive department store business grew rapidly: department stores/shopping malls/outlets achieved revenue of 721/10.60/699 million yuan in the first half of the year, compared to +42.22%/+46.62%/+56.36%, which was the main driving factor for the company's performance recovery; Lianhua Super Market, a subsidiary that mainly operates in the supermarket business, achieved revenue of 12.911 billion yuan/yoy -11.94% in the first half of the year, with a net profit loss of 63.34 million yuan in the same period last year, mainly due to the consumer profit of 63.21 million yuan during the pandemic last year Outstanding performance, The overall base figure is relatively high.

Gross margin continues to rise, and overall expenses are well controlled. The company's gross margine/net margin for the first half of the year was 26.56%/1.95%, year-on-year +3.23pct/+2.48pct, mainly due to the significant improvement in gross margin of the comprehensive department store business. Among them, the gross margin of department stores/shopping malls/outlets in the first half of the year was +4.85pct/16.00pct/10.54pct, respectively. The gross margin was high and is still on an upward channel, driving the company's overall gross margin to accelerate. In terms of cost rate, the company's sales expense rate/management expense rate/R&D expense ratio were +0.13 pct/+0.10 pct/0.01 pct, respectively, compared with the same period last year, and overall control was good.

Operating capacity and cash flow performance are stable. The number of inventory turnover days for the company increased by 3 days year on year in the first half of the year; the number of accounts receivable turnover days decreased by 2 days year on year, all of which remained stable. Net operating cash flow for the first half of the year was $1,913 million, an increase of 18.35% over the previous year. The cash flow situation was good.

Actively promote asset securitization operations. On July 13, 2023, the company announced that it will begin the application and issuance of public REITs for the Shanghai Youyicheng Shopping Center project in Yangpu District, Shanghai, which is 100% owned, as an infrastructure project. If the public REITs product is successfully launched, on the one hand, it will open up the company's “investment, finance, and exit” channels to help the company truly transform from a traditional asset-heavy operating model to an asset-light development model; on the other hand, it will help the company build an innovative financing platform in the capital market and achieve two-wheel drive for listed companies and public REITs platforms.

Risk warning: Performance recovery falls short of expectations, increased risk of industry competition, transformation and upgrading falls short of expectations.

Investment suggestions: In the first half of the year, the company continued to promote the refined operation of department stores and shopping malls, and the discount retail trend also led to rapid growth in Ole. Combined with the impact of last year's low base, the overall department store business performance improved dramatically. In the future, the company will continue to promote the layout of the national Ole Ole business format, keep abreast of changes in consumption trends and promote the transformation of the stock business format, and at the same time actively promote asset securitization operations to further activate the company's business potential. We maintained the company's net profit of 702/918/1,134 million yuan for 2023-2025. The corresponding PE was 30/23/19x, respectively, and maintained the “increase in holdings” rating.