Key points of investment:
The company announced its semi-annual report for 2023, and the performance was in line with expectations. According to the company's announcement, 1) 23H1 achieved revenue of 42,027 billion yuan, -13.76% year-on-year, mainly due to insufficient consumer confidence and the company's optimization of the store structure, elimination of long-term loss-making stores, and prudence in opening stores. Net profit for return reached 374 million yuan, 112 million yuan for the same period last year, deducting non-net profit of 99 million yuan, +5.56% year-on-year, of which non-current asset disposal profit reached 172 million yuan. 2) 23Q2 The company achieved revenue of 18.225 billion yuan, or -15.18% year-on-year. Net profit attributed/non-net profit after deduction of parent was -330 million yuan/-519 million yuan, respectively, and -614 million yuan/-534 million yuan for the same period last year.
The refined operation of stores enhances the user experience, and the online business is steadily improving. According to the company's announcement, 23H1 has opened a total of 1008 stores, added 4 new supermarket stores, eliminated 29 stores with long-term losses, signed up to 105 unopened stores, and has a reserve area of 817,900 square meters. 23H1 takes user experience as the starting point, adjusts and optimizes the store structure, enhances the interest of product displays, enhances store appeal, and promotes refined store operations. At the same time, the company is actively exploring online channel opportunities, going from multiple dimensions of products, scenarios, and services to enhance matching between people, goods, and markets, and online business has shown continuous and steady growth. 23H1's online business revenue was 7.92 billion yuan, +4.4% year-on-year, accounting for 18.7% of the main omnichannel business. “Yonghui Life”'s self-operated home-to-home business achieved sales of 4.06 billion yuan, an average daily order volume of 295,000 orders, an average monthly repurchase rate of 48.9%, and further increase in user stickiness. The third-party platform-to-home business achieved sales of 3.86 billion yuan, +10.9% year-on-year, with an average order volume of 197,000 orders per day. As of August 2023, the company has launched a total of 940 e-commerce warehouses, including 135/131/652/22 basic warehouses, high standard half warehouses, integrated store warehouses, and satellite warehouses, respectively, to help the sustainable and efficient development of online business.
Gross margin continued to improve, and 23H1 turned a loss into a profit. According to the company's announcement, 23H1/Q2's comprehensive gross margin was 21.99%/20.83%, year on year +1.64/1.66 pct, 23H1 retail/service gross profit margin of 16.52%/93.85%, year on year +1.72/-0.55 pct. We are optimistic that gross profit margin will continue to improve in '23, driving positive operating profit margin performance. The cost rate for the 23H1 company period reached 21.62%, +1.66 pct year on year. Among them, the sales/management/finance/R&D expense ratio was 17.29%/2.25%/1.59%/0.49%, respectively, and the year-on-year change was +1.23/+0.41/+0.02/-0.01pct. The cost rate for the 23Q2 period was 24.23%, +2.19 pct year on year. Among them, the sales/management/finance/R&D expense ratio was 19.88%/2.12%/1.74%/0.5%, respectively, with a year-on-year change of +2.13/+0.05/+0.04/-0.03 pct. Under comprehensive influence, 23H1/23Q2's net return interest rate was 0.89%/-1.81%, and the year-on-year +1.12% /loss ratio narrowed.
Efforts are being made to build independent brands, and supply chain+digital barriers continue to strengthen driving development. According to the company's announcement, with consumer demand as the center, the company focuses on selecting selected SKUs with high cost performance, and is making efforts to build its own brand. 23H1's own brand sales reached 1.95 billion yuan, accounting for 4.64%, or +15.2% over the same period. The company is strengthening the creation of differentiated and popular products in fresh food, food and supplies, enhancing brand positioning, and optimizing the consumer experience. At the same time, the company seeks consumer interaction through various drainage strategies and actively innovates brand marketing to deepen user relationships. Through events such as brand festivals, new product launches, and brand launches, 23H1 achieved a total brand exposure of 86 million+, further enhancing users' brand awareness. On the supply chain side, the company is deeply involved in supply chain construction to consolidate competitive barriers, and promote supply chain cooperation under its own brands with six major sunshine supply chain standards. 23H1 has introduced more than 60 suppliers with planting bases and innovative R&D capabilities to jointly promote R&D and innovation under its own brands, forming a “two-way mutual assistance” cooperation model.
Maintain a “buy” rating. The company continues to consolidate fresh food supply chain barriers and its own brand innovation to consolidate core competitiveness. In 2023, the company will continue to deeply cultivate supply chain construction+technology center to drive performance development, and make every effort to build a fresh-based, customer-centered omni-channel digital retail platform to promote steady growth in performance. Considering the impact of the company's continued promotion of store adjustments, we lowered our profit forecast slightly. We expect the company's net profit to be 395/572/870 million yuan (the original value was 487/664/888 million yuan), respectively, maintaining the “buy” rating.
Risk warning: Industry competition is intensifying, business transformation falls short of expectations, and store transformation falls short of expectations.