The company announced its third quarterly report for 2023, with results in line with expectations. According to the announcement of the Company, 1) In the first three quarters of 2023, the Company realized revenue of RMB 9.252 billion yuan, with a year-on-year increase of 0.32%, net profit attributable to parent company of RMB 225 million yuan, with a year-on-year increase of 95.97%, and non-net profit deducted from parent company of RMB 121 million yuan, with a year-on-year increase of +167.95%. 2) 23Q3 Company realized revenue of RMB 3.02 billion yuan, with a year-on-year increase of 0.96%; realized net profit of RMB 10 million yuan, with a year-on-year increase of 121.81%. 3) 23Q3 Company has signed a total of 13 reserve projects to be opened, including 9 shopping centers and 4 independent supermarkets. The Company has opened a new pre-warehouse to explore the development of new supermarket formats and continuously optimize the store structure. As of 23Q3, the Company operated 99 stores (including 5 franchised and managed outlets) and 117 supermarket stores (including 31 independent supermarkets), covering a total area of about 4.49 million square meters, covering 34 cities in 8 provinces.

Grasp important marketing time points, store iterative upgrading to adapt to new consumption demand. According to the company announcement, 23Q3 comparable stores realized revenue of 2.824 billion yuan, an increase of 1.55% year-on-year. According to different formats, the revenue of supermarket comparable stores was 1.842 billion yuan, down 2.56% year-on-year, and the revenue of 100-format comparable stores was 982 million yuan, up 10.28% year-on-year. The Company coordinated marketing, grasped the summer file, and created Tianhong "Fun Festival" through joint IP "Bear Haunting". During the event, the shopping center passenger flow increased by 28% year-on-year. Through optimization of online business, online sales in 23Q3 increased by 1.6% year-on-year, and supermarket sales accounted for 22.3%, of which third-party platform sales accounted for nearly 20%. The company actively developed the public domain platform and realized double increase of traffic sales volume. The exposure of chatter in 23Q3 reached 351 million yuan, with a year-on-year increase of 116%. The coupon sales realized GMV of 110 million yuan, with a year-on-year increase of 405%; the coupon sales of Meituan realized GMV of 259 million yuan. In order to explore new business formats, the Company continued to upgrade and build large store experiences, promote the breakthrough of first store and introduction of high-end commodities, and enhance passenger flow, commercial value and customer experience in high-end areas.

Profitability continued to improve and expense control remained stable. According to the company announcement, 23Q3 company achieved comprehensive gross profit margin of 36.56%, up 0.31pct year-on-year. According to different formats, the gross profit rate of supermarket comparable stores was 23.23%, down 0.62pct year-on-year; the total profit of 100 comparable stores increased by 111.08% year-on-year. The expense ratio of the Company during 23Q3 was 38.64%,+0.09pct year-on-year, among which the year-on-year change of sales/management/R & D/finance expense ratio was +0.64/+0.16/+0.06/-1.37pct. Under the comprehensive influence, the company realized a net interest rate of 0.34% in 23Q3, with a year-on-year +1.86pct.

Promote digital capacity building and continuously polish high-quality supply chain. According to the announcement of the company, the company continues to build strategic core commodity groups, with sales of strategic core commodity groups +2% year-on-year, among which sales of large single products +40% year-on-year. Self-owned brand products broke through and promoted new products, with sales of +11% year-on-year, including leisure food sales of +44% in the 45 days before Mid-Autumn Festival; 3R sales of +13% year-on-year through joint development of Mid-Autumn prefabricated vegetables; international direct procurement sales of +13% year-on-year. In the first three quarters, nearly 212 million people used Tianhong APP and Mini programs to obtain information or consume. The overall number of digital members was nearly 46 million, and the consumption conversion rate of new members was +10% year-on-year. Zhizhi Digital Branch expanded cultural tourism, hotels, supply and marketing cooperatives and other industries, with revenue of +18% year-on-year in 23Q3, and explored and promoted SaaS of AI capability to realize external empowerment.

Maintain earnings forecast, maintain "buy" rating. Over the past 23 years, offline retail business has shown a steady recovery trend. Tianhong has grasped major marketing nodes, continuously strengthened digital construction and built a high-quality supply chain. Optimistic about the company's core commodity group strategy and iterative upgrading of business formats drive the improvement of store operation capacity, the expansion of public domain traffic drives the continuous development of online business, and the profitability improvement under the repair of consumer demand. We maintain our earnings forecast, expecting EPS of 0.24/0.27/0.30 yuan in 23-25 years respectively, corresponding to PE of 22/20/18 times, maintaining the "buy" rating.

Risk hint: consumption recovery is not as expected, and the cost of digital construction exceeds expectations.