1-3Q23 performance meets our expectations

The company announced its results for the first three quarters of 2023: operating income of 5.129 billion yuan, an increase of 2.8% over the same period last year, net profit of 262 million yuan, an increase of 32.0% over the same period last year, deducting 132 million yuan of non-net profit, an increase of 42.6% over the same period last year.

On a quarterly basis, 1Q/2Q/3Q23 's revenue reached 1.502 billion yuan, which was + 3.3%, 18.9% and 11.1%, respectively, compared with the same period last year; the net profit from home was 0.97 yuan, 153,000,000 yuan, and + 6.3%, 1029.6%, 87.2%, respectively; after deducting non-net profit, it reached 0.76Universe 0.51 billion yuan, which was + 25.8% / turnround to profit /-86.7%, respectively.

Trend of development

1. Revenue in the first three quarters increased by 2.8% compared with the same period last year. Among them, single Q3 revenue fell 11.1% compared with the same period last year, and we believe that the main reason is that 3Q22 Zhougudui Real Estate Company concentrated delivery of residential projects, real estate business to increase the revenue base.

In terms of business formats: 1) the department store industry (including home appliances) benefits from the recovery of offline passenger flow, and we expect revenue to improve to a certain extent in the first three quarters compared with the same period last year; 2) the supermarket industry is affected by increased competition and a high base last year, we expect revenue to be under pressure in the first three quarters; 3) in the agricultural trading market, the company gives full play to its channel advantages to help revitalize the countryside, and we expect revenue to increase steadily in the first three quarters compared with the same period last year.

2. Steady progress has been made in reducing costs and increasing efficiency, with 1-3Q23 deducting non-net interest rates and increasing 0.7ppt. Company 1-3Q23 achieved a gross profit margin of 27.7%, with a reduction of 1.0ppt, of which 3Q23 gross profit margin increased by 0.3ppt to 27.4%. In terms of period expenses, the 1-3Q23 sales expense rate was reduced by 0.4ppt to 6.4%, the management + R & D expense rate was reduced to 14.7% by 0.7ppt, and the financial expense rate was increased by 0.1ppt to 0.7%. In addition, about $110 million was generated from the disposal of non-current assets during the reporting period (we expect it to be mainly composed of housing collection and rehousing payments). Under the combined influence, the company's parent net interest rate increased by 1.1ppt to 5.1% compared with the same period last year, and the non-net interest rate increased by 0.7ppt to 2.6% compared with the same period last year.

3. The results of quality improvement and efficiency improvement in the main industry are emerging, and pay attention to the progress of business transformation. Since 2023, the company's various formats and stores have been continuously optimized, adjusted and upgraded, adhering to the "one store, one policy" and "new opening of old stores", and strengthen brand renewal, increase the introduction of high-end brands and key brands, and the flow of customers to stores has rebounded. In addition, the company strengthens the construction of the supply chain through unified distribution, joint acquisition and distribution, source direct procurement and factory customization, and plans to further reduce manpower, procurement, property and other related costs, we expect to take more measures and improve the profitability of the company.

Profit forecast and valuation

Maintain the 24-year profit forecast of 318 RMB 253 million in 2023 (taking into account the impact of large asset disposal gains in 2023), and the current stock price corresponds to 16 times of Pmax E in 2023. Maintain an outperform industry rating and target price of 6.15 yuan, corresponding to 2023, 24, 15 and 19 times Pmax E, which is 21% more upside than the current.

Risk

Industry competition intensifies, transformation is less than expected, and real estate regulation and control is tightened.